The foreign exchange market (forex) is where currencies are traded. For multinational companies, this market provides a means of doing business in other countries, facilitating the payment of bills in the local currency. For speculators, this market provides opportunities to take advantage of movements in exchange rates.

Currency investing has recently attracted more interest as economic uncertainty has enveloped the globe. Historically, trading currencies was reserved to multi-national corporations and well-financed investors, but this market has been opened up to the average investor.

1. Diversification

You can use currencies to balance your portfolio. For example, it you believe the dollar will drop in the future, you can buy one or more currencies that you think will rise.

One difference between stocks and currencies is that stocks move independently of each other while currencies move relative to each other. With currencies, when one is rising, another must be falling.

2. Level Playing Field

Unlike stocks, the news that drives currency prices is available to everyone on a real-time basis. In theory, there are no “insiders” in the foreign exchange market, which operates 24 hours a day around the world. Since currency valuations are driven by actual monetary flows and events that influence a country’s economic health, you can do your own analysis of how these events might impact its currency. » Continue Reading »