Investing in Foreign Currencies ( Forex )

Wealth manager always advocate diversification of investments and the 2 classic groups for investment diversifications are usually bonds and equities. In recent years, investors have been chasing for yield and more classes of investment products are popping into the view of everyday investors. Some examples include precious metals, art pieces, wine and foreign currencies, or forex in short.

In this article, we will look at the possible ways of investing in forex (short form for foreign exchange). Forex is the largest market in the world with the longest trading hours. In fact, the exchange rate for various currency pairs produces quotes for 24 hours every weekday. What I will try to discuss is to invest and not speculate in forex, so forex trading platforms will not be covered.

Why invest in foreign currency?

Forex has long been recommended as an investment product with low correlation with bonds and equities . This means foreign currency price movement has very little relationship with the movement of stocks or bonds and this complements the goal of diversity for investors.


As with all investment, you will need to understand it and have a long term view of the product to have success in investing, and of course, having a long investment time horizon will also help. In a very simplistic view, if you believe that a certain country is likely to enjoy economic boom, the currency will most likely appreciate and it will be good to invest in it.


But of course, the world does not operate in a simple environment. There will be intervention by government to control their currency through price pegging, interest rate manipulation or implementing monetary policies. So you will need to adjust your views accordingly.

How to invest in forex?

Many banks have introduced multi-currencies saving accounts. After you have deposited money in this account, you will be able to exchange them to another currency at the prevailing foreign exchange rate quoted by the bank. The spread rate (i.e. the different between the buying and selling price) of the banks are using very high, so its not a good platform for short term buying and selling. But if you are looking at long term appreciation of the currency, then this spread will be insignificant and this becomes a viable way.


Another method is to open a foreign currency fix deposit account with your local banks. They also offer better interest rates when compare to the foreign currency savings account. So this is worth considering if you want to hold on to that foreign currency for quite some time. This is also useful for people who needs to spend in that currency in the future, such as paying for education fees.


For the more affluent, there is also dual currency investment, where it lets investor enjoy extra yield based on their view of the currency movement. This is usually not available to normal retailer due to the nature of higher risk