The access of the poor to foreign exchange trading
By far the largest trading market in the world is the forex market. Speculators account for only a small part of spot (cash market) and forward (futures market) foreign exchange transactions. So if you’re considering speculating in this area, keep in mind that you’re trying to guess at the brightest minds and supercomputers at the big banks and hedge funds; along with political whims and the convenience of government treasury departments.
The common use of the portfolio to hold foreign currencies is to protect against the decline of your home currency. For most people, their salary and all their assets are based on their local currency, and if that value falls, so does all their net worth and future earnings. For the Americans, for example, there has been a growing trade deficit with China for many years. And if China were to allow its currency to fluctuate, the US dollar would fall against the Chinese yuan in concert with this trade deficit.
You can also include currency trading as an additional way to diversify your portfolio. I have read many, many books to learn about forex trading, and even traded the Swiss Franc for six months. If you want to learn how to speculate on currency trading, you can try some technical analysis services (www.currencyprofits.net) or get a PhD. in economics and finance, but I can’t guarantee that it will increase your chances of success.
I did my only “very poor man” currency transaction before the establishment of the euro in 2002. While driving my car, I heard a speech on the radio from the German president that I felt was sure to cause short-term change. fall into the deutsche mark. I drove to the nearest AAA travel office and went to the ATM next door to withdraw $200 in cash and put it in my pocket. Being a member of AAA, I exchanged the $200 for American Express Traveler’s Checks denominated in German Marks. Four months later, the US dollar was up 10% against the German mark. So I took my DM checks to exchange them back for dollars and withdraw them with a giant profit. To my disappointment, the fees for the buy and sell transactions added up to about 8%, leaving me with a whopping $4 profit. So if you want to try the “traveler’s check” route, you’ll need a large trend to offset your transaction fees. Additional reference material for this article is available at http://investing.real-solution-center.com.
The next step up in cost is an ETF that is based on the Euro with the ticker symbol FXE. It is technically a trust, but it trades exactly like a stock and fluctuates very close to the USD/Euro rate. When you think the dollar is going to fall against the euro, simply buy a few of these stocks to offset your currency risk and you can start with a stock for less than $200.
The next way to get access to foreign currencies is to get some FDIC-insured certificates of deposit from Everbank.com. They offer CDs in more than 10 different foreign currencies and a couple of indices, and the minimum investment is just $10,000 for an interest-bearing account. So if you’re tired of the low interest rate on your savings account, there are currencies that regularly offer higher returns without undue currency risk.
Risk a few small steps in foreign currency investments, and anything dollar-based will feel disappointingly tame. Plus, you’ll get bragging rights with your friends and dinner parties on your fancy investment portfolio.
