When you think of the foreign currency market, what do you think of? Perhaps world economies exchanging money from one currency to another. Maybe large institutions making decisions that affect millions of stockholders or account owners.
But did you think about you you’re invested in the world currency market even if the scenarios above are not in your control?
The reality is that we’re all invested in the currency market in one way or another. The money in your pocket and your checking account gives you exposure to the value of your domestic currency (dollars, euros, pounds, yen, etc.). Granted, when it comes to money that you are likely to be spending in the short term on goods and services priced in the same currency it’s not really much exposure. But, for your bigger assets and holdings, it can be a different story.
Let’s take something like your retirement savings or pension plan. You will spend that in the future, potentially at a time when the value of the currency is lower. We’re not just talking about inflation here (though that’s a legitimate concern). We’re also talking about the currency’s value in terms of the currencies of its major trade partners.
That value influences the cost of the goods you buy which are imported from abroad, not to mention the cost of those trips around the globe you have in mind for your golden years, and that villa in the south of France you’re hoping to purchase.
The currency market also impacts you in other ways. The earnings of companies in your investment portfolio have exchange rate exposures in many cases. These come in two forms. One is exchange rate conversion of overseas income. The other is the impact exchange rates can have on the attractiveness of the company’s products abroad, and the costs of foreign goods and services it consumes.
For that matter, if you work for a multinational company, or one that does business abroad, your very livelihood could have exposure to the currency market. It’s become an increasingly large part of the world in which we live, work, and invest today.
It’s also one you can take advantage of in your investing plans.
The foreign exchange (Forex) market is a 24-hour per day, five day per week market (and even weekends in some cases) where people come together to swap currencies. If you’ve ever traveled abroad you have participated in the Forex market by exchanging your home currency for that of your destination.
So, is investing in Forex the right investment strategy for you? Consider the following:
- With $4 trillion in daily trades, it’s the world’s largest market
- It’s not as risky as they say: the volatility of currency exchange rates is markedly lower than most other markets
- Analysis and trading is tricky but there are many programs where you can have the transactions made by expert traders in their own accounts automatically duplicated in yours.
Just like investing in any other market or asset class, you should consider educating yourself before you dive in. That’s why we’ve put together a primer called “The Smarties’ Guide to Alternative Investing in the Foreign Exchange Market” which gives you just enough information about the Forex market, how it works and how you can participate as an investor. Smart investors can find it here. Happy investing.