4 top tips for investing in currencies and foreign exchange
Investing in currencies and foreign exchange can help to give you a balanced and more diverse portfolio. But if you have never ventured into this field before and are thinking of giving it a try, then here are a few tips for investing in currencies and foreign exchange that could help. Investing in forex markets can be risky. However, you can make a profit in a short span if you are careful and aware of the risks.
Use a broker
One of the top tips for investing in currencies and foreign exchange is to seek the help of a broker.
Ensure that you choose a broker who is registered with the Securities and Exchange Commission and is a part of the Financial Industry Regulatory Authority (FINRA).
Also, checking the broker’s website can give you an idea about the quality of their execution. This would include speed and the percent of trade requests that have been carried out successfully.
You will also need to find out about how they charge their commissions.
Find out about the tools and resources available such as what newsfeeds and live market commentary is followed. Would you receive alerts about rates through text messages, emails, or other mediums such as Twitter? Does the firm offer any phone or tablet apps?
Before you open an account with a brokerage firm, it is essential that you check their customer service as forex is a market that functions for 24 hours of the day. The representatives should be knowledgeable and licensed. It might be a good idea to give customer service a call and check out the quality for yourself.
Make a long-term investment
The market for currencies and foreign exchange is probably one of the most volatile. And to be a successful trader or investor in this market, you need to know about countries and their economic risks. These risks would impact the currency and include corruption, unstable governments, inflation, employment rates, GDP levels, and other factors. Also, you should be aware that other than the major currencies like the Swiss franc, Japanese yen, British pound, and American dollar, other currencies might be risky investments and illiquid, which means they cannot be easily converted to cash. Hence, when investing in currencies and foreign exchange, a long-term investment allows you to monitor your currency over a period of time to see how it’s doing, just like stocks.
Choose the major and stable currencies
As mentioned above, when investing in currencies and foreign exchange, choose the four major ones or relatively stable countries. Although, some risky investments might give you a higher return. For example, although investing in Mexico, Chile or Brazil might be risky, you could get a higher return compared to the Euro or US dollar. Also, you get your value plus interest if the currency goes up. Hence, knowing and being aware of important economic data that can have an effect on currency rates is important.
Buy a Mutual Fund or ETF
As investing in currencies and foreign exchange can be risky, buying exchange-traded funds or ETFs and mutual funds might be a good idea. This helps to diversify your portfolio and lower your risk as you can choose your preferred level of risk. ETFs are similar to stocks and are an option to invest in currencies without having to trade in forex. Exchange-traded notes (ETNs) are like corporate bonds.
Due to low transaction fees and liquidity, trading in currencies is very popular. However, you should be aware of the fact that investments of any kind are subject to risks and changes in the market. These changes will have an impact on your returns. It is best to read up and thoroughly research trading and other investment options or to speak to an expert to understand all the pros and cons in detail. Consider the above mentioned tips the next time you want to invest in currencies and foreign exchange.
