Foreign currency investing – also known as “forex” or “FX” for short – is a great way to diversify your portfolio. The Nash app gives you easy access to a number of foreign currencies as crypto-based stablecoins.
In this guide we’ll also explain what foreign currency investing actually is, how you can do it, how it works and some other top tips to get you ahead of the curve.
In very basic terms, foreign currency investing involves buying the currency of one country while selling the currency of another: it’s not forex if it’s not done in pairs.
An example would be selling British pounds while simultaneously acquiring US dollars.
Think of it as being a British tourist in the United States and trying to pay for a hotdog in New York with British pounds. You wouldn’t be able to because it’s not the locally traded currency. You would have to find a place to exchange your GBP at the current exchange rate for USD in order to get your tasty snack.
This is forex at work. But when it comes to trading, it’s done on much bigger scales.
The exchange rate between currencies dictates whether you make a profit on this, or whether you don’t. Sometimes when you go abroad, you benefit from exchange rates – and other times you don’t.
Forex trading is most commonly carried out with what are known as pre-established pairings, which are typically grouped in four ways:
Major pairings
The world’s most frequently traded currencies sit in this group, including the US dollar (USD), the British pound (GBP) the euro (EUR) and the Japanese yen (JPY).
Minor pairings
These include many of the most frequently traded currencies listed above, with the exception of the US dollar (USD).
Exotics
In this category you’re usually pairing a heavily traded currency, like the British pound (GBP), against a lesser-known, thinly-traded currency, such as the Singapore dollar (SGD) – or perhaps the US dollar (USD) with the Hong Kong dollar (HKD).
Regional pairings
Here we have currencies from the same region being paired and traded against one another, typically from the Asian or the European regions.
Market participants often use forex to hedge against interest rate risk, to speculate on geopolitical events – such as Brexit – and to diversify portfolios, and for other reasons.
Currency valuations fluctuate on a daily basis, much like stocks, so smart traders can capitalize on these fluctuations by pairing the right currencies and swapping investments between them.
It’s important when pairing currencies to pay attention to how they’re ordered.
For example, in a USD/HKD pairing, the US dollar is the base currency and the Hong Kong dollar is the quote currency. The price shows how much of the quote currency (in this case, the HKD) is required to buy 1 unit of the base currency (in this case, the USD). For example, USD/HKD at 1.2000 means that 1 USD can buy 1.2000 HKD.
Timing when to make the exchange is key to making a profit.
Here’s some tips to get you started investing in foreign currency
Do your homework
Trading foreign currencies doesn’t sound complicated. There are cheap online courses available and they are well worth it if forex trading is something you are going to take seriously.
Orchestrate a strategy that is right for you
Be realistic about the amount of cash you want to trade and the amount of risk you are willing to take. There are more rewards to be had when there’s higher risk at play, but the downsides can also lead to losing money.
Check your positions on a daily basis and close out when necessary
Don’t be afraid to terminate a position when necessary and always make sure there’s money in your account to make future trades.
You don’t need access to a specialized forex trading platform to start trading foreign currencies. You can do so easily by using the Nash app, thanks to crypto-based stablecoins.
Stablecoins are cryptocurrencies that are tied or ‘pegged’ to another asset, usually a fiat currency like the US dollar. This makes them less volatile compared to assets such as Bitcoin (BTC) and more “stable” for investors.
You can acquire these assets using the Nash app. USDC can be purchased directly for euros, and other foreign currency stablecoins are available for trading under the “Swap” tab.
All you need to establish is the size of the investment that feels right to you and a few taps later you can become a stablecoin owner and therefore, by proxy, an investor in foreign currency.
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DISCLAIMER: This article is for informational purposes only and does not offer professional financial advice. For a full appreciation of investment strategies and risks in your particular situation, please consult a professional.
