The foreign market functions between brokers and banks, individual traders who are represented by a broker, and between bands.
The foreign exchange market is a 24-hour market where currencies are traded from all around the world. The forex market is engrossed by lots of traders who trade on the fluctuations of the currencies to each other. The foreign market functions between brokers and banks, individual traders who are represented by a broker, and between bands.
Investing in currencies involves risk like other investment methods and especially when the economy is volatile, but forex trading is so popular because of the leverage it provides to the traders.
In forex trading, traders are not bound by any limits which are imposed by the SEC (Securities and Exchange Commission). This means the traders can take advantage of heavy leverage from it.
Here in this article, you will learn about the different ways through which you can invest in the currency market.
- Multinational Corporations
A lot of shareholders participate indirectly in the forex market via their holding in companies that do considerable business in foreign countries. Some of the most popular companies that have overseas exposure are IBM, Amazon, McDonald’s, Walmart, Coca-Cola, Dunkin Donuts, Domino’s, Nike, Toyota, Lego, etc.
The profits and revenues acquired from foreign countries are magnified if the foreign currency increases in value against the dollar. It is because those profits are changed into dollars for the purpose of financial reporting. So, a more powerful foreign currency will generate more dollars in exchange.
- Standard Forex Trading Account
You can open a standard forex trading account with a well-reputed, and trusted broker like Oinvest and trade currencies from all around the globe. There are many variations in how the forex market works as compared to the U.S stock market:
- There is no regulatory authority over it, and it is not a regulated exchange.
- Currencies are traded in pairs if you are trading one currency will go down (short), and the other currency will go up (long).
- There is no uptick rule for taking short positions.
- Currency brokers often make money through spreads and swaps instead of commissions.
- There is no upper limit for your position.
- Foreign Bond Funds
There are a lot of mutual funds that put money in foreign government bonds. These bonds draw interest denominated in the foreign currency. If the foreign currency goes up compared to your currency, then the obtained interest swells when that currency is changed back in your currency.
Some examples of these types of mutual funds are Templeton Global Bond Fund, Merk Hard Currency Fund, and Aberdeen Global Income Fund.
- ETFs and ETNs
ETN is exchange-traded notes, and an ETF is exchange-traded funds. Both ETFs and ETNs are traded like shares. And it can be a way to invest in foreign currencies without directly investing in forex.
By opening a standard trading account, traders can buy ETFs, and through that, they can get access to currencies. Some examples of such ETFs are UUP, ProShares UltraShort Euro, the Invesco DB US Dollar Index Bullish Fund, or EUO, etc.
Exchange-traded notes (ETNs) are very much similar to corporate bonds. And they have the same exposure to the forex market that ETFs have.
- CDs & Savings Accounts
EverBank, now known as TIAA Bank, provides a WorldCurrency certificate of deposit (CD). In certain countries, this CD makes interest at local rates. CD also provides a forex trading account which works like a money market account and enables the transfer of money between major currencies.
The CDs are dependent upon the exchange rate movements, but it provides a much higher interest rate than a dollar-dominated certificate of deposit. When these CDs get matured, the trader will get back fewer dollars than he has invested if the dollar becomes stronger compared to the foreign currency.
Bottom Line
In the currency market, the currencies are influenced by economic, geopolitical, and events around the world. At this time, access to the currency market is so easy as any trader can invest in it through a standard trading account and an internet connection.
