subject: Investing in the Currency Market [print this page] To start with, the main forces that drive the value of currencies in the forex market are the demand and supply for these currencies. Thus, the currency value is constantly fluctuating, since the supply and demand for specific currencies are also always changing. What is very important for the foreign exchange market is that the demand for the foreign stock implies the demand for a certain foreign currency as well. It must be mentioned that this definitely influences this currency's price positively.
It results in a fact that a foreign exchange market appears to be a vast and profitable field for foreign investments, in addition to being the most liquid market in the world (which certainly increases the net profit form the foreign investments).
In fact, there are a couple of ways of making investments in the foreign exchange market, some of them being more risky than the others. For example, foreign investors have a possibility to trade currencies straightforwardly by means of creating their trading accounts or make currency investments by means of foreign exchange brokers.
Though, margined currency trading can involve possible losses. Thus, it appears to be quite a dangerous form of investment. Currency trading fits those forex traders and foreign investors who are capable of managing the probable losses.
Actually, it is considered that foreign investors seeking to make investments in the foreign currencies should better do it by means of exchange-traded funds (ETFs) and there is a wide choice of instruments allowing to do this. The key thing about ETFs is that some of these funds make bets in favor or against the US dollars, and others purchase the basket of the world currencies. For instance, a forex investor can buy an exchange-traded fund consisting of forex futures on some major currencies. This allows to capitalize on the trend that currencies with high interest rates have higher value in comparison to currencies with low interest rates.
Some points to keep in mind while choosing to invest in the foreign exchange market are taxes (it must be mentioned that investment in foreign currencies has been considered tax-inefficient historically) and costs (including fund and trading fees). You should understand that especially if you are using forex trading system.
However, for the most part, investing in the currency market has a clear benefit when it comes to making up one's investment portfolio. Overall, forex investments, if treated properly and sensibly, can turn out to be quite a profitable business.
