Currency Trading

[AndrewWiggin]

Does anyone here do this? I feel like there's a potential to make a ton of money in it right now.

Anyway, if you do currency trading, mind giving us a crash course, or directing us to valuable sites to educate ourselves?

 

[toucanlamp]

Never buy the actual currency if you want to invest in a currency. What you do is buy some kind of security valued in that currency.

The risks are substantial. Whenever you invest in a foreign currency, right off the bat you start off with somewhere around -1.5-2% returns because you pay a commission for the exchange. And then the day you want to sell and convert back to your local currency, you pay that commission again.

I'd be very careful. Anytime someone says the think there is an opportunity to make a TON of money in something, they're speculating and the just as likely result is that they will find an opportunity to lose a ton of money.

When you invest in a company, there are tangible details you can look at and make a decision based upon them. Currency on the other hand, jumps up and down every day on a billion different factors, almost all of them unpredictable before hand. A currency's value does not correspond with the strength of a country's economy necessarily.

Currencies can absolutely plummet in value. But they never skyrocket. The only way you make massive returns as an individual investor in currency is if your local currency plummets, and then having all that foreign currency isn't going to be that useful because you won't want to convert it back because inflation will be rampant.

It's like day trading. They say 5% of day traders make huge returns and 95% end up losing money.

The only proven investment strategy is buying solid securities and holding on to them long-term. But there's always risk.

 

[CMATakashi]

Case in point: The euro has reached an annual low today.
Source: http://www.bloomberg.com/apps/news?pid=20601085&sid=a68hf9ZsNYOM

 

[toucanlamp]

Case in point: The euro has reached an annual low today.
Source: http://www.bloomberg.com/apps/news?pid=20601085&sid=a68hf9ZsNYOM

Exactly,that's a really great example actually.

A year ago everyone was going on "Oh the US dollar is going down, the Euro is going to replace it as the default international currency of transactions."

And then look forward to today. Countries like Greece and Spain are basically running on a junk bond credit rating, needing to get the other EU countries to put up tons of cash just to get investors to accept the risk of buying their sovereign debt at a rediculously high rate for national bonds.

 

[Uncle Erik]

Be careful. Any of these "easy money" strategies can easily produce lost shirts.

Holding securities is usually a conservative way to go, but even they have me a little spooked today. I think Wall Street is propped up with a lot of bailout funds at the moment.

I've put a bit into real property lately, believe it or not. Some markets are still overinflated, but others are pretty decent. The measure is to look at rents. If rent covers the mortgage, insurance, property tax, etc., plus a little return, then it's OK.

Always look at rents. Rent tells you what people in a market can actually pay. Mortgage values only tell you how much someone can borrow. There's a vast difference.

Plus real property comes with a lot of terrific deductions and it's a tangible asset, which I think is important right now. There's too much funny business with paper and intangible assets.

Also, taking on some debt is a sure hedge against inflation. If you check out the growth in the money supply since 2008, you'll see why that's a good idea.

 

[Commander Quan]

Andrew I know from some of your other posts that you are a young guy, like myself, (I'm 26). If you haven't already I would consider setting up a Roth IRA for yourself, and try to put as much as you can each month into it. We have the advantage of being young and letting any money that we invest accumulate and compound for the next 30 or 40 years. This method of investing has a proven track record and is much lower risk than other more volatile investment strategies.

 

[sproosemoose]

forex.com is pretty popular

 

[toucanlamp]

I just read an article, apparantly just today, Standard and Poors officially downgraded Greece's credit rating literally to junk bond status. Here in Canada with interest rates what they are today, if you buy a Canada Savings bond maturing in one year, you will earn 0.4% interest. In Greece, for two year bonds they had to offer them at a 15% interest rate. That is unheard of for the sovereign debt of a developed nation. And now they are requiring a $45 Billion Euro bailout package from other EU nations. Their debt is 115% of GDP.

And this is dragging down a currency that many people have been major bulls on for several years.

People love to bash the US and the dollar, but most European nations are in far worse shape.

I'd personally never invest in anything outside of North America. The risk isn't worth the potential for reward. And that is ultimately all investing really is, trying to strike a balance between the two. What you want to make a habit of seeking out is instances where the potential rewards make taking on the risk very worthwhile. It's like looking around and finding a casino where 60% of the numbers on the roulette table are Black or Red, playing with an edge.

 

[AndrewWiggin]

Andrew I know from some of your other posts that you are a young guy, like myself, (I'm 26). If you haven't already I would consider setting up a Roth IRA for yourself, and try to put as much as you can each month into it. We have the advantage of being young and letting any money that we invest accumulate and compound for the next 30 or 40 years. This method of investing has a proven track record and is much lower risk than other more volatile investment strategies.

I'm actually 21, so a lot of this is moot until I get a real job, which is why I want to find out how others are faring. There are two schools of thought for younger investors: one is you have a longer time to build on your investments. The other is you're young, take risks because you can make more.

I'm very cautious and conservative, but I don't want that to dictate my investment strategies. I think there's wisdom in both approaches, I just have to figure out how to balance them.

I just read an article, apparantly just today, Standard and Poors officially downgraded Greece's credit rating literally to junk bond status. Here in Canada with interest rates what they are today, if you buy a Canada Savings bond maturing in one year, you will earn 0.4% interest. In Greece, for two year bonds they had to offer them at a 15% interest rate. That is unheard of for the sovereign debt of a developed nation. And now they are requiring a $45 Billion Euro bailout package from other EU nations. Their debt is 115% of GDP.

And this is dragging down a currency that many people have been major bulls on for several years.

People love to bash the US and the dollar, but most European nations are in far worse shape.

I'd personally never invest in anything outside of North America. The risk isn't worth the potential for reward. And that is ultimately all investing really is, trying to strike a balance between the two. What you want to make a habit of seeking out is instances where the potential rewards make taking on the risk very worthwhile. It's like looking around and finding a casino where 60% of the numbers on the roulette table are Black or Red, playing with an edge.

Well, my thoughts when posting were that the EU's big slide should mean you could buy up Euros and hold for a bit to make a good deal of money once this is sorted out. The EU is going to do what it has to do in order to fix Greece and Spain, and there's still the issue of Turkey joining. The EU has held together this long, I think it's here to stay, and if they add Turkey, their economic power is going to increase significantly.

Anyway, thanks for the advice! Good to know what the normal commission is, and to trade in securities rather than cash.

I've been reading financial statements of some foreign companies for a few classes, and have seen a lot about forward contracts. Do you use currency forward contracts? Or is that primarily a hedging issue?

 

[CMATakashi]

I'm actually 21, so a lot of this is moot until I get a real job, which is why I want to find out how others are faring. There are two schools of thought for younger investors: one is you have a longer time to build on your investments. The other is you're young, take risks because you can make more.

I'm very cautious and conservative, but I don't want that to dictate my investment strategies. I think there's wisdom in both approaches, I just have to figure out how to balance them.

I'm 21 years old too. I have my IRA allocated to an aggressive option within the Fairholme Fund. I've been maxing my IRA contributions since I was 16. (Talk about lame christmas/birthday presents).

I suppose I am with the school of thought that it is time to take risks: the invisible hand tends to dictate that markets will always grow in the long term. Though this isn't quite the case yet (I am just barely in the black), I have no doubts it will be.

However, with my short term investments (trying to save for a home when I'm 25) I am invested in a much more conservative mutual fund.

 

[82R100]

Does anyone here do this? I feel like there's a potential to make a ton of money in it right now.

Anyway, if you do currency trading, mind giving us a crash course, or directing us to valuable sites to educate ourselves?

At the risk of sounding blunt, this isn't an investment strategy; it's convincing yourself (or letting someone else convince you) that you can tell the future. There is much in the investment world that smells like gambling, but has some level of fundamental research and due diligence that can be applied towards determining value, relative risk, etc. Currency trading would be strictly gambling for you.

- Chris

 

[AndrewWiggin]

I'm 21 years old too. I have my IRA allocated to an aggressive option within the Fairholme Fund. I've been maxing my IRA contributions since I was 16. (Talk about lame christmas/birthday presents).

I suppose I am with the school of thought that it is time to take risks: the invisible hand tends to dictate that markets will always grow in the long term. Though this isn't quite the case yet (I am just barely in the black), I have no doubts it will be.

However, with my short term investments (trying to save for a home when I'm 25) I am invested in a much more conservative mutual fund.

Where are you getting the money for this IRA?

I'm flat broke all the time...

 

[raisindot]

Andrew, currency trading, like day trading, is a suckers' game for small investors.

Unless you've got the economic background to understand how valuations work in nano-time and access to extensive market and economic data on the countries whose currencies you're considering, you are much better off playing slots or blackjack.

All these currency traders and day traders is lure small investors with "amazing get rich ideas" and all they do is charge commissions. Unless you've got a pile of money to lose, you're much better off learning the fundamentals of investing and investing in strong blue chips stocks or index funds that invest in them as a start, then gradually diversifying into mid-size and smaller company funds.

If you really think that you'll make money in currency, first set up a "dummy account" with a Forex account provider and place some fake trades and see how you do. And don't just let one day's success convince you. Do it for a period of several weeks and see how you "theoretically" come out. Most likely, you'll end up either the same or a tiny bit ahead or below what you started with. Keep in mind, however, that in a simulated account you may not be paying "commissions," which will eat up a good share of your balance.

Jeff in Boston

 

[CMATakashi]

Where are you getting the money for this IRA?

I'm flat broke all the time...

I'm flat broke all the time too! And I work internships and do research during the school year.
Somewhere deep inside it will pay off, I keep telling myself. IRA contributions are $5k a year max.

 

[82R100]

I suppose I am with the school of thought that it is time to take risks: the invisible hand tends to dictate that markets will always grow in the long term. Though this isn't quite the case yet (I am just barely in the black), I have no doubts it will be.

Tends to dictate? In the long term we are all dead.

Long term market growth has nothing to do with currency trading though. That's just gambling.

- Chris

 

[AndrewWiggin]

I'm flat broke all the time too! And I work internships and do research during the school year.
Somewhere deep inside it will pay off, I keep telling myself. IRA contributions are $5k a year max.

I just can't manage to hold onto the money for long enough-bills, etc.

 

[CMATakashi]

I just can't manage to hold onto the money for long enough-bills, etc.

Well here, tuition is cheap and so is living: my folks are also helping alot with the bills. I can't take all the credit, and for that I'm really thankful. I would hate to have to work.