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How Do I Invest In Foreign Currency?
February 27, 2013 3:25 PM   Subscribe

It was suggested to me to make a small investment in foreign currency. What are the basics? Would it be best to go through broker or to invest on my own? Help!
posted by goalyeehah to Work & Money (12 answers total) 2 users marked this as a favorite
 
You are looking for a guide to "Forex".
posted by bensherman at 3:27 PM on February 27, 2013


Easiest thing to do is to open a bank account denominated in that currency. Buying local currency bonds from that country would also effectively be the same thing.

That said as a speculative activity its usually a really bad idea. You really don't benefit from having a currency mismatch between your assets and liabilities. The only sort of understandable difference between currencies is inflation and real interest rates. If that's what you are implicitly trying to wager on, then there are maybe better ways to do that.

If by investing in FX that person is suggesting to trade FX futures or something like that - well don't do that. Something like 1% of small investors who do that make money.
posted by JPD at 3:30 PM on February 27, 2013


As JPD says, this is essentially gambling, or wagering, and way too risky to be a good investment. You certainly don't want to get into an area as dependent on trade balances, interest rates, and internal central bank support as this without some real expertise.

If you have an appetite for risk, I'd suggest considering investing in an arena where you can reasonably do some research and make at least a more calculated investment decision, like stocks.
posted by bearwife at 3:39 PM on February 27, 2013


Was it "investment in foreign currency" or "investment in foreign markets"? Because the second is a very different kettle of fish from the first.
posted by yoink at 3:53 PM on February 27, 2013


If you could explain why someone made that suggestion to you, then we can better answer your questions. Normally such an investment would be considered a very high risk gamble that is only certain to make money for the broker but not for you.
posted by Dansaman at 3:56 PM on February 27, 2013


such an investment would be considered a very high risk gamble that is only certain to make money for the broker but not for you

This is bullshit. Diversification across asset classes and currencies is perfectly acceptable and normal practice.

Go through a broker, all the online ones will let you buy another currency, and then you will simply have >1 cash balances in your account, accruing interest at the different levels.
posted by H. Roark at 4:10 PM on February 27, 2013


This is bullshit. Diversification across asset classes and currencies is perfectly acceptable and normal practice.

Big difference between investing across currencies and investing in currencies.
posted by Jairus at 4:14 PM on February 27, 2013 [2 favorites]


Who suggested it? How small is 'small'? At very small amounts, you'll lose anything you make in fees anyway. What other investments do you have and who manages them?
posted by jacalata at 5:34 PM on February 27, 2013


There are multiple ways to trade FX but if you have an existing brokerage account, one of the easiest is to use ETFs linked to the currencies; The most liquid have ticker symbols that start with FX and then a third letter based on the currency in question FXE is the Euro, FXY is the Yen, etc. You can buy and sell these just like stocks. These "stocks" are not the best way to invest in FX but they are the easiest. The best way in terms of fees is usually a specialist FX brokerage where you will trade the FX directly; you can also do FX directly with most standard brokerage accounts but be careful to check the fee structure. Depending on your balance, they can add in a lot of fees.

If you don't have an existing stock trading account you may want to consider looking at equity exposure (including foreign currency denominated equities) before jumping straight into FX, which is a pretty volatile and hard-to-value asset class.
posted by limagringo at 5:37 PM on February 27, 2013


Everbank will also sell you certificates of deposit denominated in foreign currencies and mixtures of foreign currencies.
posted by procrastination at 5:58 PM on February 27, 2013


Diversification across asset classes and currencies is perfectly acceptable and normal practice.

This is totally true, but it's not clear from the post that this is being used as a portfolio diversifier and sounds more like a speculative bet on currency by someone who doesn't fully understand it.

I suppose you could quite simply take your dollars to a bank (or something similar) and buy a bunch of yen (or whatever) and then buy your USD back later, but you're still going to pay currency conversion fees and/or lose money on the spread. I wouldn't necessarily do anything more complex than that unless you have a stronger understanding of what you're investing in and how the investment is structured. FX markets can be complex, mind bending and volatile, so I would approach this with caution and if you're only wagering a small amount of money, I can't imagine any gain would be worth the risk (or brokerage fees you'll pay). There are better, less complex and less risky ways to make indirect bets on a certain currency if you feel particularly strongly about one.
posted by young sister beacon at 9:10 PM on February 27, 2013


xe.com has a decent-looking beginner's guide to Forex trading. I've found them good for straightforward currency transfers (of the "take these dollars from my US account and put some pounds in my UK account" variety) but have never tried Forex trading as an investment.
posted by pont at 10:46 PM on February 27, 2013


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