As an investor, you should carefully consider risk-management techniques to help mitigate these risks and improve their long-term returns before deciding to invest.

* The key benefits of investing in foreign currency include:

A large and liquid market: The foreign exchange market is the largest and most liquid market in the world, with an average daily volume in excess of $5 trillion.
Diversification: The foreign exchange market offers investors a way to diversify away from potential risks associated with the U.S. dollar as an asset class.
Trading Hours: The foreign exchange market operates 24 hours a day, five days a week, which offers more trading time than most traditional equity, bond, or futures markets.
Potentially Low Costs: Most foreign exchange trading doesn’t involve paying a commission, but rather, a bid/ask spread that tends to be tighter than equities.

* The key risks of investing in foreign currency include:

High leverage: The foreign exchange market moves in very small increments, which makes high leverage, through the use of margin, a necessity, and risk for those investing directly.
High volatility: The foreign exchange market has notoriously high levels of volatility due to economic reports, central bank interventions, and other factors.

Investors should carefully consider risk-management techniques to help mitigate these risks and improve their long-term returns. In addition, investors need to keep ample capital on hand to avoid risks from using leverage when trading directly on foreign exchanges.


Investing Indirectly With ETFs

Exchange-traded funds (ETFs) represent one of the easiest ways for non-currency experts to invest in foreign currency. These funds purchase and manage a portfolio of currencies on behalf of investors using tools like swaps and futures contracts.

Investors benefit because they do not have as much leverage-related risk, and the purchase itself can usually take place through a traditional stockbroker rather than a foreign exchange broker.

Investing Foreign Currency Directly

You can directly invest, buy and sell individual currencies on margin through a foreign exchange brokerage. With an initial deposit as low as $3000 to $5000, investors can buy currencies with margin levels ranging from 50:1 to more than 10,000:1. Keep in mind though, greater leverage obtained by using margin also translates to increased volatility and risk of larger losses.

Take the time to review and select a high-quality broker since the European forex market does not enjoy as stringent regulations as those of the U.S. equity markets.