Tags: currency | investing | markets

Investors Jump into Currency Trading

Tuesday, 19 Oct 2010 04:24 PM

Despite the relatively high risk for neophytes, a growing number of investors are trading currencies these days.

It’s sign of growing investor frustration with up-and-down stocks and a bond market that seems to have topped out.

The Chicago Mercantile Exchange reports trading volumes jump 125 percent last month over year-ago levels on the smaller retail-oriented forex futures contracts it launched last year.

Foreign-currency trading "provides a great opportunity but it has to be done very carefully," full time currency trader Nasser Bakizada told The Wall Street Journal.

"The biggest risk is, during volatile times, you can get burned very quickly."

Not surprisingly, brokerage firms are doing everything within their power to accommodate this trend.

TD Ameritrade now offers futures and forex trading systems to all its customers, not just active traders. And though its equity volumes were down in July, the brokerage reports that trading volumes in futures were up 60 percent and forex trading was up 34 percent.

Currency trading is still risky, so new rules set by the U.S. Commodity Futures Trading Commission (CFTC) aim to protect investors by prohibiting retail forex dealers from offering more than 50-to-1 leverage for major currencies or 20-to-1 leverage for exotic currencies.

Leverage of 100-to-1 was common before the new rules.

Even with the restrictions, an investor trading major currencies can trade as much as $50,000 with only $1,000, underscoring the need for investors to tread carefully into this new area.

Forex trading requires that investors trade two currencies at the same time, buying one and selling the other. Because investors can borrow large amounts against a relatively small actual investment, the potential for large gains — and losses — is huge.

Moreover, investor risks increase substantially in the over-the-counter retail-currency market, which is less regulated than the stock and futures exchanges.

Increasingly user-friendly foreign-exchange trading sites make it easy for investors to trade. In fact, at Oanda.com, traders can buy and sell currencies for as little as $1, and Forex.com rolled out a new pricing structure that essentially reduced spreads on trades by as much as 50 percent earlier this year.

Mutual funds and exchange-traded funds, too, can be an easier and safer way for small investors to get currency market exposure. Morningstar tracks 16 open-end mutual funds and 32 ETFs and exchange-traded notes.

Choices include Oppenheimer’s Currency Opportunities Fund, which primarily buys currencies of the U.S.'s major trading partners; John Hancock’s recently launched Currency Strategies Fund; and WisdomTree’s actively-managed ETF, called Dreyfus Commodity Currency Fund.

Buying foreign-currency certificates of deposit is another way to play the currency market.

EverBank offers a CD whose returns are tied to the Deutsche Bank Currency Returns Index, which tracks popular trading strategies. Though it ties up money for four years, investors’ principal is protected and earning can reach 100 percent of the index's returns.

Treasury Secretary Timothy Geithner says the U.S. will not devalue the dollar in order to boost exports.

“Something like that will not happen in this country,” Geithner said in a recent speech.

Also, after slipping for several weeks on expectations of more Fed easing, the dollar rebounded on news that China had raised interest rates, a surprise move.

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
StreetTalk
Despite the relatively high risk for neophytes, a growing number of investors are trading currencies these days. It s sign of growing investor frustration with up-and-down stocks and a bond market that seems to have topped out. The Chicago Mercantile Exchange reports...
currency,investing,markets
526
2010-24-19
Tuesday, 19 Oct 2010 04:24 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved