Did You Ever Wonder How to Invest in Foreign Currency?
You may want to know how to invest in foreign currency holdings, which are distinct from the better known Forex market.
It’s really not a very different experience from purchasing government bonds or opening a bank account in the United States.
The key point with this is that you may need to have significant assets if you want to invest directly and you need to be able to research foreign currency holdings to understand if it’s a good deal.
Consider for example the Greek and Irish markets and the euro zone as a whole.
Rather than engaging in Forex trading in the euro zone, you might instead purchase euro denominated bonds in European countries (more about Greece and Ireland in a moment).
Thus, you are basically buying and holding assets in foreign currency rather than making in and out purchases as most Forex traders do.
Now, the catch is that, as is the case with Greece and Ireland (we mentioned those two countries for a reason), the banks and the government in both of those countries have run into problems of late and may have trouble paying back loans made to them.
So far, the rest of Europe (mostly Germany, though to a lesser extent, the UK and France as well) have been busy trying to bail out their southern friends.
Because they know that allowing these countries to collapse financially could hurt them even worse than simply extending more credit and handing them additional bailout money.
However, as someone who wants to invest in foreign currency, you need to keep in mind that you can lose your investment.
Sometimes more easily than investing here at home because you are not there on the ground.
You can’t see what’s going on and if you don’t pay careful attention to exchange rates, which can fluctuate wildly.
How Much Can You Make If You Know How To Invest In Foreign Currency?
Thinks of this as being not very different from working in the bond market or opening a CD here in the United States.
People do make millions of dollars by investing in foreign currency, however people also lose millions of dollars by doing so.
The safest bet is usually (though not always) sovereign debt, meaning debt to governments (i.e. bonds) or domestic banks that offer foreign currency CDs.
Were you to have invested in Greek government bonds for example, before the bailout took place, you might have been offered 10% interest on your money.
The catch of course is that Greece went bankrupt, though they were propped up by the European Union.
Generally, expect to earn returns similar to those you might for investing domestically with some possibly higher returns when economies show signs of rapid growth.
Ways to Make More | Related Opportunities | Tips
As previously noted, this is not the sort of thing you want to be doing with your $1,000 life savings.
If you have hundreds of thousands of dollars or millions to invest, then you may very well want to try to invest in foreign currency.
The safest way to do so, though it will give you the least amount of return on your money is to open a foreign bank account (like a Swiss bank account) or a domestic bank account denominated in a foreign currency.
Remember again that bank accounts for foreigners are not intended for the person with a few hundred or even a couple thousand dollars.
They are intended for those with serious amounts of money that they would like to invest overseas.
Bank accounts at domestic banks which are delineated in foreign currency may have smaller thresholds, though they still typically will require investments in the tens of thousands of dollars.
Keep in mind also that even if you invest in a foreign currency CD from a domestic bank such as Everbank, you can still lose money.
These CDs are FDIC insured, however since they are delineated in a foreign currency, the value of your investment vis a vis the dollar will fluctuate.
If you choose to invest with a bank overseas or if you choose to purchase foreign stocks or bonds, then you can potentially lose everything since you don’t even have FDIC insurance.
Qualifications / Requirements
There is no formal training required to do this, however it helps to have a background in finance, mathematics or statistics.
The main requirement is that you are well educated about foreign markets and that you are prepared for the risk involved in investing overseas.
Start by reading everything you can about foreign investing.
Then read some more. The better you know a foreign country the more likely you are to do well.
Then, consider contacting places like Everbank where you can open CDs delineated in foreign currency.
If you want to go all out, consider looking at banks in foreign countries and open an account overseas, again, if you have the money to do so.
- Everbank – An American, FDIC insured bank that offers CDs delineated in foreign currency. The money is FDIC insured, but you can still lose money because the exchange rate may change.
- Bankrate: A Little Foreign Change in Your Portfolio? – A good analysis of why you may wish to invest in foreign currency and what the risks involved are.
- MoneyNing: Four Ways to Invest in Foreign Currency – An excellent article showing you different ways of putting your money into foreign currency.