Hard Currency instead of Forex as an investment?

Question

Would'nt it be profitable to actually HOLD a foreign currency (maybe in an Ultra-high interest foreign bank account) as opposed to buying it by contracts or Forex over and over again. Currency contracts all have expiration dates-which means your currency could eventually evaporate. Is'nt there a way you can hold a currency without leverage and profit from the fluctuations?

Answer 1

Forex is the spot market, not a futures contract that expires. By trading the Forex, you are buying bundles of actual currency, and there is no expiration. You can hold your trade as long as you wish. There is also a futures contract on each of the majors, but this is not what you asked about. But incidentally, concerning futures, nothing "evaporates," but rather "settles" at some price, usually the spot price. I trade both, and the futures have less slippage, but the margin is more. But then, I'm a trader, and you are asking about "investing."

Your second question concerning leverage:
You can buy $100,000 worth of currency with $1,000 margin. This would be the purchase of one standard lot, at 100:1 leverage. Just because you "can" doesn't mean you "should" trade with this kind of leverage, as you seem to be aware. Trading stocks with 2:1 leverage is considered risky.

What most people don't seem to realize, is that you don't have to trade with leverage at all. Just put $100,00 in your account, buy one lot, and you have zero leverage. Or put $10,000 into a mini account and buy one mini-lot, or $1000 and buy one micro-lot.

You can see that by controlling leverage, trading the Forex doesn't have to be any more risky than trading stocks or any other investment.

And hold it until the cows come home if you wish.

Answer 2

Just remember that the interest is paid in the foreign currency.

Example: you decide to buy 133 Australian dollars with 100 US dollars at the current rate, because AUD pays a better rate, let's say 6% per year in the money market.

In years, if the interest rates are stable, you will have made 35 Australian dollars just in interests, so you will have 168 AUD.

Unfortunately, the exchange rate goes back to where it was 4 years ago, 2 AUD = 1 USD.

You change your money back in USD, and you've got 84 US dollars left.

Welcome to the world of Forex!

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Good luck

Marc

Answer 3

You can, but doing your US based taxes is a pain when you have assets in foreign banks - you're subject to taxation in both countries, and the taxes can wipe out a great deal of your gains, especially if there's no reciprocity between US and that government for taxation. That's why you buy Forex, they do the paperwork for you, and report it appropriately on the necessary IRS forms.

Answer 4

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