- Currency is a unit of exchange used to buy goods and services
- Currencies are issued by countries and used in international transactions
- Major currencies include USD, EUR, and GBP
- Investing in currencies involves betting on their relative strength or weakness against each other
Pros of investing in foreign currencies
- Diversification: Investing in currency can diversify your portfolio and reduce risk. Currencies may not move in the same direction as stocks or other assets, which can help protect your investments from market volatility.
- Liquidity: The currency market is the most liquid financial market in the world, which means that buying and selling currencies is generally easy and fast. This makes it easier to enter and exit positions quickly, in other words, trade very easily.
- Accessible: Currency trading is accessible to individual investors (so not big banks or institutions), which means you don't need to be a professional trader or work for a financial institution to participate.
Cons of investing in foreign currencies
- Risk of Loss: The value of currencies can be volatile and can fluctuate rapidly, leading to significant losses for investors. Currency trading can involve a high level of risk and it is worth saying that it’s not suitable for all investors.
- Complex Markets: The currency market can be complex and difficult to navigate, particularly for beginner investors. There are people who spend their entire careers dedicated to understanding the currency market, so don’t beat yourself up if it’s overwhelming!
- Political and Economic Risk: Currency values can be affected by political and economic events, such as elections, government policies, and global economic trends. These factors can be difficult to predict and can lead to significant losses.