MoneyMakingForex.com

Investing in Foreign Exchange Rates

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Personal Investing Uncommon

You rarely hear about individuals investing in forex. The talk about currency trading is mostly about getting rich quick or making twenty percent return per month. There is a lot of hype surrounding the whole arena. Not to say that there isn't hype around the stock market, but at least a large number of people understand that they are good for investing.

So are currencies, it's just that all the advertising attracts the wrong type of people. Right now the only ones investing in forex are institutions and high net-worth people.

However, that said, currencies are a fantastic hedge and can be an excellent diversification to your portfolio. There is one huge thing you need to watch out for…

Leverage

Most forex brokers are geared to cater to traders (obviously), and one of the things that they see as a huge selling point is the fact that they offer 100:1 leverage. In other words you put down $10.00 and you control $1000.00 of currency.

In a carefully controlled account this can be advantageous (however, it is usually disastrous). Remember that that kind of leverage means that a 1% swing in price will double the account or reduce it to zero.

Naturally, if you're investing a swing in equity even 10% of that size is unacceptable. You want leverage at 1:1. In other words, you want no leverage. That is the most stable way, and if you're truly investing, it's the only safe and sane way to do it.

Fundamentals

Traders almost exclusively look at the technicals. They stare at charts and mumble about MACD and other complicated things.

As an investor, you need to know the fundamentals of the market. You need to be able to tell what the economy is like in a given country. You need to get a feel for how the central banks act. You need to be concerned with trade deficits.

These are the things you need to learn. Search the internet. Read some books. It's like anything else. A first it seems unnatural and hard, but with some dedication, it becomes second nature.

You have to learn the language of the market, but that's no different than any other market.

Warren Buffet

Warren Buffet and his company have invested some $20 billion in various currencies. That's a lot of money. Furthermore, Warren is one of the best investors. If he thinks it's a good idea to invest in other money, what do you think? Another way to ask the question is, are you smarter (in terms of money matters) than Mr. Buffet?

I think the answer is obvious.