Approach currency trading with great caution

August 25, 2011

Discern whether currency trading is a viable way to make money.

Q: I see commercials for currency trading on television. Is it really a viable way to make money?

A: The short answer is "no." Buying non-U.S. currencies as an investment is based on the belief that they will appreciate against the dollar and/or other currencies during the time you hold them. Because a huge number of factors influence the different prices that currencies bring over time, it is estimated that 90% of all currency traders lose money. Even highly experienced investment banks experience large losses trading currencies. It is an area rife with speculation, and many argue that insider trading and manipulation corrupt the market.

A better alternative is to own some foreign stock and bond funds that are not "hedged" against the dollar. In this way, you gain exposure both to the foreign investments and to how their currencies perform against the dollar.

Send your money management questions to medec@advanstar.comAnswer to our reader'question was provided by Steven Podnos, MD, MBA, CFP, principal, Wealth Care LLC, Merritt Island, Florida.