Does FX Fit in My Investing Goals?
There are only two goals in the whole investment universe: capital preservation, and capital gains. When an investment vehicle serves the purpose of capital preservation, it acts as a way to store your money for future consumption. Capital-preservation investments are usually low-risk investments. You pay for this low risk and safety by accepting a lower potential for interest paid and gains. It is simply that a return on that part of your investments is not as important as the requirement that the invested principal be there when it is time to take it out and use it for consumption.
On the other hand, if an investment is one that is expected to produce capital gains, the investment is expected to move up and down along a gently upward-sloping path. When you invest for capital gains, what you are expecting is that the investment will be worth more sometime in the future then what it cost you. The price you pay for this potential upward movement in price (gain) is the risk that the investment might not be worth more when you sell it than when you bought it. In the future, it might even be worth less than when you bought it. It is this risk of the unknown future price that you accept as a price to pay for the chance that the investment will pay a capital gain in your favor.
Before you invest or trade any of your assets, you should ask yourself, “Should this money be put in an investment vehicle that offers a safe but small return, or should I put it into a vehicle that offers a higher return, but is riskier?” This is the question that you must ask yourself when it comes to currency trading: “What are my investing goals, and are they met by opening a currency account and trading in the FX market?”
If you trade in the FX market you can meet several goals. You can design your overall portfolio to have a majority of assets in very low-risk, capital-preservation investments. You could then take a small percentage of your overall assets and place them in a FX account and trade that money with higher (or lower) risk strategies. These currency strategies can then serve as a return enhancement to the otherwise low-risk, capital-preservation portfolio.