When we keep cash, we need to decide on which major currencies to hold: Is it going to be USD, GBP, EURO, JPY, CHF, AUD or others? Holding the wrong currency can easily result in a loss of value between 5-20% in a year. On the contrary, a correct decision can increase your wealth by similar margin.
Foreign currency transactions and investments may sound risky to many retail investors. The foreign exchange (or 'forex') market are largely dominated by banks and institutional investors. Individual investors need to understand the benefits, risks, and the most effective ways to invest in foreign currency. Bank traders only make up 5% of the total number of forex traders with speculators accounting for the other 95%, but more importantly is that the 5% of bank traders account for 92% of all forex volumes.
There are no miraculous secrets to trading forex. All those special indicators cannot guarantee you profit in the dynamic forex market. You simply need to understand how the major players (bankers) trade and analyze the market. If you get the fundamental economic aspects right then you are well on the way to success.
There are many benefits and risks to consider before deciding to invest in foreign currency.
While it is the largest and most liquid market in the world, investors should understand, recognize and accept the many risks that set it apart from traditional investments. Most importantly, the high leverage used when investing in foreign currency can result in high volatility and greater risk of loss.
The key benefits of investing in foreign currency include:
The key risks of investing in foreign currency include:
At Financial.org, we aim to educate our members on risk management techniques to help mitigate these risks and improve their long-term returns. In addition, it is important to keep ample capital on hand to avoid any risk stemming from the use of leverage when trading directly on foreign exchanges.
Our education philosophy in Forex Trading is simple:
Forex investment is very dynamics. It requires continuous financial education for one to be able to maintain his/her currency portfolio at a profitable level. As long as one keeps a certain amount of Cash, Foreign Currency Investment is a skillset that one needs to maintain for a lifetime.