FOREX Investing Made Simple – What Is Forex? – Maverick Investing Series

Forex is the world’s largest trading platform with close to four (4) trillion dollars a day traded. It is a high risk investment market but can be mastered through proper education, accurate advice, and some experience.

The Foreign Exchange Market (Forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies.

Amazingly, after presenting it as a high risk investment platform, it can be a very safe investment vehicle if you have access to insider information. We define insider information as “looking over the shoulder of Forex investors that have verifiable high income producing success rates. But let’s explain some of the basics of Forex investment and really, explaining its pros and cons.

WHAT IS THE FOREX MARKET?

It is the trading platform enabling investors to exchange currencies of one country for another’s. For example, if the US Dollar is high, and the Australian dollar is at a low level, you may desire to exchange USD (U S Dollars) for Australian dollars.

You would make this currency exchange hoping the value of the Australian currency would rise. The lowers the exchange rate differential (called the “spread”) between the USD and the AUD (Australian Dollar). If the USD was valued at $1.00 and in comparison, the AUD was valued at $.80 in comparison, there would be a $0.20 spread.

If the AUD went up in value to say $.90 compared to the USD (still valued at $1.00 here), you could realize a $0.10 profit for each dollar you traded if you closed out your trade now. That would be a $100.00 profit for each $1,000 you invested.

Simply put, you’re buying a cheaper currency at a low rate hoping it will increase in value like any other product. If it goes up, you make a profit. If it goes down you lose money.

The Forex market assists international trade and investment by enabling currency conversion.

For example, it permits a business in one country, say Canada, to import goods from the Europe, especially Eurozone members, and pay Euros, even though its currency is in Canadian (or the purchasing countries) currency. It also supports direct speculation in the value of currencies, speculation based on the interest rate differential between two currencies

Some primary tools you’ll use

You’ll need a Forex account for your investment deposits which you would setup with a broker. Usually, a small deposit of $100 or $200 is the starting amount for beginners, though you can invest as much as you want. Typically, the deposits increase as you gain experience and confidence in you investment ability.

Set up a free practice account

The smart approach to learning this investment medium is to setup your own free practice (or demo) account. You are issued “virtual” or fake money (like Monopoly money) to invest. This allows you to learn, gain some experience, and determine when you are ready to start investing real money. All this is free.

You’ll need to familiarize yourself with the accounts investment platform, the software enabling you to access the online Forex marketplace. This is usually free too. And you’ll likely want to take a brief Forex course explaining the terminology and investing basics of Forex.

Our next article in the Maverick Investments Forex Series will cover the pros and cons of Forex investing.

The Basics Of Institutional Investment

Investors or investment funds that do not belong to the country in which they are currently investing are called foreign institutional investors. Such investors are from another country, or are registered in a country outside the country in which the investing is being done. Insurance companies, mutual funds, hedge funds and pension funds are all examples of institutions that are involved in foreign institutional investments.

Institutional investors are companies that collect and invest large sums of money, into assets like securities, property and other such investments. Operating companies that choose to invest a part of their profits into such assets are also called institutional investors. There are six basic kinds of institutional investors. They are pension funds, endowment funds, insurance companies, commercial banks, mutual funds and hedge funds.

They perform the duty of highly specialized investors acting on behalf of others. For example, let’s say a salaried individual will get a pension from his employer. The employer hands that employee’s pension contribution to a fund. The fund uses the pension amount to purchase shares, or another kind of financial product in a company. Such funds are valuable because they have a vast investment portfolio in numerous companies. The benefit of this is that the risk gets spread. This means that if one company fails, only a very minor part of the entire fund’s investment will be at stake.

Investments made through institutional investors have a number of benefits for a retail investor. These benefits are:

• The investments are able to influence the solvency of a company.
• An investment by a large institution acts as an anchor investment for other institutions to invest in that particular company/stock, thus increasing its value.
• The institutional investments are safer as there is a wide range of domain knowledge used before making such investments and also such investments are diversified into several companies or asset classes.
• The risk of such investments is not as high as that of investments made by non-institutional investors, as the investment portfolio is vast and diversified. In case of corrosion in value of one asset class, the entire corpus would not be greatly affected.
• The corporate governance is better enforced by institutional investors.

A lot of institutional investors are very interested in private equity as an asset class. This is because private equity has promising benefits in terms of diversification. The returns of private equity can be higher than that of other investments, but they are also more risky and are high beta investments. Institutional investors usually carry out very different and varied investment strategies for private equity. Because of the high level of market confidentiality as well as the limited amount of academic scrutiny, not much is known about the performance and basis of these investment strategies.

Where to Invest and How to Invest Your Money Now for 2013-2014

Knowing where to invest and how to invest money has never been more difficult then it COULD be as 2013 and 2014 unfold. Making money as an investor is tough when times change, so let’s take a look at how to and where to invest money… to avoid heavy losses if the economic world takes a turn for the worse.

Before 2013, the answer to where to invest money was simple: buy stock funds and bond funds, if you are an average investor. Bond funds provided high income and relative safety, while money in stock funds was the answer to was how to invest for growth and higher returns (from early 2009 to early 2013). Then, in June of 2013, the money game got serious as interest rates threatened to rise significantly and ruin the party for everyone.

Stock funds and bond funds are still the average investor’s answer to where to invest most of their money. But if interest rates really take off, you’ll want to own the best bond funds and best stock funds. Let’s look at bonds and the bond market first.

When interest rates go up significantly, bonds and bond fund investors ALWAYS lose money. Long term bond funds get clobbered, as prices (values) take heavy hits in the bond market. Shorter-term funds are hurt much less. How to invest: look for short to intermediate-term corporate bond funds, with low expense ratios and NO sales charges (no-load). These are the best bond funds today because they pay a reasonable dividend with less interest rate risk, and they are low-cost.

Now let’s take a look at the stock market and how higher interest rates can affect stock prices and stock funds. IF rates take off across the board, stocks are likely to take a hit as well. Note: With bonds, losses WILL occur. With stocks, losses are likely (depending on how far and fast rates climb). Where to invest in stock funds: the best stock funds will be conservative EQUITY INCOME funds paying 2% or more in dividends. Once again, look for expense ratios of less 1%, with NO sales charges (no-load). This can save you 5% off the top and 1% or more a year.

Now let’s look at where to invest money if interest rates REALLY take off. In 2007 vs. early 2013: rates dropped about 4 percentage points. In early 2013 bank CDs and money markets were paying LESS than 1% vs. 4% to 5% in 2007. If rates go up 4 points from here: mortgage rates could hit 7% or more, and long-term bond funds could lose one-third or more of their value. If we go back to 1981 interest rates, mortgages went for 14%, while CDs and money markets paid 15% or more. If we revisit these rates, it will be an absolute economic nightmare, especially for bond investors.

Where to invest money in mutual funds if interest rates zoom: money market funds are the safest and best funds in this scenario. They pay virtually ZIP now, but THIS IS NOT NORMAL. In 1981 they approached 20% returns, with high safety. Before the financial crisis of 2008 they were returning 4% to 5%. When interest rates go up across the board… money market interest rates (short-term rates) go up as well.

I’ve spent the past 40 years following the markets, investing money and learning how to invest and where to invest to avoid big losses. There’s an old line that says that NOW is always the hardest time to invest money. Well, now is 2013 and 2014… and investing money could be a BEAR. Don’t get aggressive now.

An Introduction to Bond and Cash Investing

As a new investor finding the right investment choice for you is something that can and should take you quite some time. There are a lot of options available to you and you shouldn’t rush into anything you aren’t comfortable or something that you aren’t fully informed about. Knowing what you are getting yourself, and your money into is half the battle.

Something you should always consider when starting out in investment is exactly how much risk you are willing to take. I highly recommend that you take the time to consult with a financial advisor when making this or any other similar decision.

Okay now we have got through that quick warning and introduction I’m going to run over two low risk investments classes, cash and bonds.

Cash investments in general are a very safe investment, it’s in a low risk asset class. Therefore, normally, any investments in cash will very rarely see any kind of fall through the investments term. However, in exchange for such good security they tend to offer a very low return rate compared to other kinds of investments.

With cash investments it’s quite common for their rate of inflation to be running higher than the original deposit rate, this is caused by their low rate of return. It’s situations like this although the value of cash itself won’t fall, the actual value and purchasing power will decrease leading to negative returns.

The real advantage of a cash investments is that they are normally the most liquid form of investment, therefore they are very easily accessible. Normally cash investments are used to provide you with an emergency funded as well as a normal day to day fund. The majority of cash investments are completed directly through banks using normal current accounts.

Now onto bond investments. Bonds are normally considered medium to low risk investments depending on the kind of bond you chose to invest in. Although this is true for most bonds that you come across their are still bonds that carry a high risk so take your time to analyse the bond you are looking to invest in before make a choice.

To round off this article I will give you a quick overview of what a bond actually is and how they can be great investments. Bonds are basically a loan from you to something like a corporation, government body, or any other similar kind of organisation. These are referred to as the issuer, they offer out bonds that have a set interest rate. Investors will they be paid a set amount of interested periodically until the bond reaches maturity, at which point the investor will be paid the original cost of the bond.

The main risk factor you have to remember when dealing with bonds is the rising and falling of interest rates. Interest rates can either make or lose an investor money. If interest rates were to rise after you were to invest in a bond then the price of your bond (if sold rather than left to mature) would fall due to the fact people could get a bond for the same price that paid more in interest. This does however, work in reverse. If interest rates fall your bond will be able to be sold for more than it original value.