Foreign Exchange Dealers

One of the benefits of investing in foreign exchange is its liquidity. The foreign exchange market is the largest financial market in the world, with average daily trading volume of $3.2 trillion in 2014. You can purchase any amount of a foreign currency from foreign exchange dealers — typically large, multinational financial firms such as commercial banks. Since there is no centralized market for global currencies, the forex market is accessible 24 hours a day. Transaction costs are very low. You pay no commissions on foreign exchange investments, but incur transactions costs via a tiny bid-ask spread.

Derivatives

Exchange-Traded Funds

Exchange-traded funds allow you to invest in a specific foreign currency or even a basket of currencies. ETFs have greatly expanded the investing world by providing low-cost vehicles for investing in virtually any sector of the capital markets. They are liquid, which is an advantage, because they trade on public exchanges just as publicly traded stocks do. You can invest in a currency ETF that tracks the performance of any foreign currency. If you expect the price of the pound to increase, you can purchase ETFs that move in tandem with the pound’s performance, using the same brokerage account you would use to trade stocks. If you are a small business owner selling widgets in Mexico, you can purchase inverse ETFs that increase in value in proportion to decreases in the peso’s value. This could offset decreases in revenues attributable to currency swings.

Currency Trading Platform

References

Resources

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