Can Get Into The Forex Market Any Other Way!
Q: I want to buy foriegn currencies & already have an idea of which ones. I am not putting in a great deal (maybe $100 sporatically here & there, put in over time). Is it a good idea to go to a currency exchange place downtown & just buy it & let it grow, which it has & all indications show it will, even more & faster.
Most of those Forex (not bashing any trader or broker, thats just the most popular one that I see) type traders tend to have high minimums just like brokers in order to do business, plus fees. I know that exchangers have fees too, but considering that I can’t get into the forex market any other way, what do you think?
A: No, what you’re suggesting is, to be blunt, stupid.
To actually buy $100 of a foreign currency is very expensive. First, your bank will charge you a fee. Mine charges $2.00. Then they sell you the currency at a disadvantageous price. Let’s say you’re buying Euros. The value of the Euro may be $1.32 but they’ll charge something like $1.35. So, you’re out over 2% and you have some Euros. Now, you can’t earn any money on your Euros. No one will let you deposit them in an account that will earn interest so they’re just sitting there.
But, let’s say you’re right and the Euro appreciates 10% against the dollar. You have to pay another $2 fee to change them back into dollars (plus the spread between what they give and what they’re worth, $1.32 vs. $1.35 in the previous example.). You will have made roughly 7.58 Euros, or about $10, less the original $2 fee, less the second $2 fee or about $6. Whoopee.
And, it’s not guaranteed that the currency you buy will appreciate. If inflation picks back up a little and the Fed raises interest rates again then all currencies will lose value against the dollar.
The expenses involved in what you’re trying to do will increase your risk of loss dramatically. This is the same reason that low cost stock market strategies, such as index funds, are so popular.
exactly what box815 said.
No.
I really don’t see a lot of value in holding raw currency as an investment. if you were anticipating visiting another country in a year or so, and think that their currency might get more expensive by then, then go for it to save a few dollars. Otherwise there are better ways.
I’ve traded currencies with OANDA.com. This isn’t a plug for them, but I don’t think they have a minimum to open an account. They claim you can trade as little as $1, but that obviously wouldn’t be very practical. I’ve done lots of trades with just $100-$200. With 20:1 leverage, you can “buy” $2000 worth of any available currency with each $100 you care to invest.
You can also leverage your currency purchases through futures and options, but that takes some sophistication.
You can even just bet on the price of currencies over very short periods of time. It’s called fixed-odds financial trading. If you think the price of the Euro will rise over the next 3 hours, you can place a $5 (or more) bet on that!
I’m currently putting a web site together on that topic…
http://globalmarketbets.com
There’s not much there yet, but it’ll grow over time.
Finally, there are now exchange-traded funds (ETFs) based on currencies. Rydex has 7 of them, which are becoming increasingly popular; because everyone wants to take advantage of the collapsing $US.
Buying these ETFs isn’t not that much different from buying raw currency, except that you don’t have to take delivery and find a place to store it. You’ll find them listed like stocks, but they don’t stray in price much from the underlying conversion rate.
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