The Ultimate Cheat Sheet to Investing in Currency
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However, if you do choose to invest in currency, you may find yourself overwhelmed and confused by the sheer number of currencies available. This article will briefly discuss the most effective way to invest in currencies and answer basic questions such as what’s the best currency to invest in.
How to Invest in Currency
Although currency investing has attracted more interest over-time, many people find it an exotic and risky venture. The main argument is that investors lack enough knowledge about how to invest in foreign currency. This investment form requires some skills, experience, and a bit of luck. However, once you learn how to navigate the market, it can be an extremely lucrative way to earn money. Here are a few methods in which you can invest in currencies.
- Invest in Foreign Currency Directly
The first way you can invest in foreign currency is by directly buying and selling individual currencies through a foreign exchange brokerage. Given the low cost of entry, one can start with an initial deposit of about $300 to $500. Luckily, the forex market does not enjoy as stringent regulations as those of the equity market. Therefore, it’s recommended that you take the time to review and select a high-quality broker.
- Invest Indirectly with ETFs
The easiest way for non-currency experts to invest in currency is through ETFs (Exchange-traded funds). Rather than use a foreign exchange broker, investors can conduct a purchase through a traditional stockbroker. Therefore, they aren’t exposed to as much leverage-related risk.
- Currency Hedging
Currency hedges are excellent in protecting against losses originating from currency movements. The only downside to currency hedging is that it eliminates some of the benefits of diversification.
What Currency to Invest in
With about 195 countries in the world, there are more than a handful of currencies to invest in. As a new investor, you are more than likely interested in knowing which currency to invest in and which one you should avoid. Indeed, some currencies don’t have the potential to deliver the best results to investors. Below we take a look at several currencies you may want to invest in or should at least know about. They include:
- The United States Dollar (USD)
The USD is the home denomination of one of the largest economies in the world- United States. It’s also known as the greenback. Despite the current trade war and geopolitical tension, the dollar is a best annual performer since 2015, posting gains against most currency rivals.
- Australian Dollar (AUD)
The AUD is known for its price stability and availability on significant platforms worldwide. It offers one of the highest yields of the seven major currencies.
- Swiss Franc (CHF)
The Swiss Franc remains consistent in the market and hardly makes significant moves. For this reason, it has become a gold standard of currencies as it provides stability against other major currencies. It’s one of the best currencies to invest in.
- British Pound (GBP)
It’s also referred to as pound sterling. It’s a little more volatile than the Euro as it tends to trade at a broader range throughout the day.
- European Euro (EUR)
The Euro is the second-largest and second most traded currency in the world. Compared to other currencies such as the AUD and the GBP, the Euro tends to be a little bit slower.
- Canadian Dollar (CAD)
A unique feature of CAD is that it tends to move together with crude oil. This is because Canada is a significant exporter of crude oil. Therefore, a lot of investors and traders tend to use CAD as a hedge against commodity positions, tracking signals from the oil market.
Best Currency to Invest in
The best currency to invest in could very well be the Euro, the US dollar, or the Japanese Yen. It all depends on your risk, appetite, knowledge, and strategy. For instance, if you have a short-term strategy, the Euro may be a good idea. If you have a long-term strategy, the Japanese Yen may present an excellent opportunity. The best way to figure out the best international currency investment for you is to first look at statistical data. Try to discern which currency has the best foreign exchange rates as well as the worst ones. Or take a traditional approach and apply the buy-and-hold strategy with lesser popular currencies such as the Vietnamese Dong or the Iraqi Dinar.
Conclusion
Investing in currencies isn’t easy. It requires a lot of commitment, combing through data, and staying alert to the latest news and events. Whatever the case, we recommend that you start with one of the more stable currencies and get some hands-on experience. From there, you can then make much bolder moves when you are ready, and you will be well on your way to success.
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