With interest rates remaining disappointingly low, investors are struggling to get a decent return on their money. In fact, when you add in the effects of inflation, many savers are actually losing money in terms of value by leaving it sitting in the bank. But what are the alternatives and should you consider investing in a different kind of market such as the foreign currency exchange? We take a look at what you should know.
What is the foreign currency exchange market?
The world’s largest financial market, the foreign currency market dwarfs every stock exchange around the world. Offering a very different kind of investment, the foreign currency market – or forex as it is often referred to – allows traders to speculate on how one currency will move compared to another. Unlike other types of investment, it is possible to rack up profits even if the currency you have placed money in is dropping in value, providing that’s what you predicted. You don’t need to be a professional trader to dabble in the market: some people manage it part-time. You will however need a registered broker in order to be able to place your money.
Are there any drawbacks?
Although forex offers great opportunities, especially when other markets are fragile or depressed, there are significant risks too. The market is known for being particularly volatile, which admittedly can earn you big money but can also wipe you out quickly too. If you are looking for short term gains you will need to monitor market action very closely and be prepared to act quickly.
Those looking for a longer term investment can take things a little easier but it’s still necessary to follow the market to check things are progressing as expected.
Should I invest?
Only you can make the final decision, but it’s worth understanding that due to the very significant risks involved, you should never trade with money that you can’t afford to lose. Although no-one hopes to lose, there is a very real risk and jeopardize money which you need to live on could end up causing you serious financial problems.
The forex market is fast, volatile and edgy, but if you know what you are doing you have the potential to make serious money. If you are considering starting to trade, make sure you carry out plenty of research first and practice on a dummy account before risking your cash.