SNAPSHOT: Investing in Foreign Exchange
How It Works:
You trade one currency against another currency, on the expectation that their values will shift so that the currency you’re holding gains in value relative to the one you traded away.
- Huge profits are possible, even with a very small investment.
- It’s Independent of the U.S. Economy: Hard times here may be boom times in other countries, and forex trading lets you make money on those differences.
- No Set Schedule: If you have a nine-to-five job, it can be tough to trade during the New York Stock Exchange’s hours of operation. Forex trading lets you take advantage of active markets in other countries when it’s early morning or late at night in the United States.
- High Risk: You can lose big if currency trends don’t go as you predicted.
- Little Regulation: Forex is an international market with only some policing by some countries. If you get ripped off, there’s a good chance you’ll be on your own.
- Study Required: Trading in forex is fairly complex, so you’ll have to devote some time to learning how to do it. Fortunately, most Internet trading companies allow you to practice with “paper” trades that have no actual value.
Who Should Invest:
If you want the excitement and potential fast gains of foreign exchange, if you have money that you don’t mind risking on a volatile investment, and you’re willing to spend some time learning how the market works (plus some more time reading international news, watching the market, and investing), forex trading might well be for you.
It also makes a lot of sense if you’re concerned about the future health of the U.S. economy, or if you want some part of your investment portfolio in an international market as a hedge against economic problems here at home.