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By Michael Sterling
Investing in foreign currency (FOREX), though risky, can bring about decent returns. Let’s face it. The American dollar is not what it used to be, but just because we have a different relationship with it than we did thirty years ago, doesn’t mean that other countries might have a better relationship.
Buying Foreign currency must be done in a smart way, otherwise you are literally throwing your money up in the air with no clue of where it will land. The one thing that is certain though is money will ALWAYS be worth something. So investing in FOREX is never a bad idea – especially if you know what you’re looking for.
FOREX investment are like betting on horse races: the strongest one will always win and the smartest investor will reap the rewards. It takes research of track records, current strengths and intuitive timing on your part.
The FOREX market is THE largest market in the world, plus it is the easiest to exchange for cash. The average daily volume has reached nearly $4 trillion. Although it’s a wise investment, there are some things to consider.
Buy Ahead In Hard Times
A country’s currency is measured by the strength of their economic and financial structure. Before you invest in certain countries, you must do some research – before and after predictions. When a country goes into a crisis of some sort – be it financially, governmental or a war – it is likely to spring back up at some point.
With this in mind, you can buy foreign currency when a country is going through hard times since it most likely will affect their exchange rate. When they rise again, their currency is likely to return to their original state – or slowly climb. Then, you can exchange the money back for much more than you paid for it. This is one strategy.
For example, the Iraqi dinar is expected by some experts to flourish in the coming years. Right now, you can purchase a dinar for less than a penny. It is said that dinar can possibly go up to 50 cents to the U.S. dollar. If that happens, you can buy $500 of Iraqi dinar and when the exchange rate goes up, you can cash it in for $25,000. Not bad.
Exchange-Traded Funds (ETFs)
ETFs are an easy way to invest in foreign currency. They will purchase and manage your portfolio of currency investments on your behalf. Plus, you will not have as much risk in leverage and the purchase of ETFs can be done through a regular stock broker, instead of a foreign exchange broker.
Wisdom Tree is a great site to look at for this. It helps you manage different accounts for different country’s currencies. You can invest in many things all at the same time, while checking back with Wisdom Tree to see how your investments are doing.
Fun Fact: Paypal actually allows you to hold foreign exchange currency within multiple accounts. By keeping your money in one place, you can set your mind more at ease knowing that it’s all in a safe place. Unlike Wisdom Tree, you will have to act as your own manager.
Our Economy vs. Their Economy
Trade with other countries can affect the exchange rate as well. According Martin Hutchinson, Money Morning’s Global Investing Strategist, Canada’s currency is expected to rise again, unless the U.S. economy weakens again which will hurt our trade with Canada – thus affecting our exchange relationship. Experts agree that Canada is a sound investment for 2013.
Canada’s banking system is pretty secure since they have a lot of energy and mineral resources that support the value of their currency. Plus, their government as a whole spends more smartly – unlike other countries.
This creates a small budget deficit. Hutchinson predicts that the U.S. dollar can be well worth over a $1 this year, meaning you can gain 30 cents to every dollar.