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Investing vs. Trading in Forex

With the advent of the Currensee Trade Leaders program, the idea of investing in the currency market has been brought to the fore in a way it never was previously. We can now really think of “investing” in forex, not just trading.

Trading vs. Investing
Actually, the term “investing” has been used in terms of forex before. It’s been used in the same way one talks about investing in individual stocks – as a loose term that also accounts for what we would call trading. I’ve written on the subject of differentiating the two approaches (Trading vs. Investing, The Difference Between Trading and Investing), so I won’t get into a lengthy discussion here. I’ll just suggest that investors tend to be much more prone to using fundamentals and much less inclined to use leverage. This article on a personal finance site uses the term “investing” but clearly is talking about what I (and I’m guessing you) would call “trading”.

Forex trading, alas, continues have a very negative connotation among investors. A couple of comments on the aforementioned article talk about how quickly you can lose money. One commentator says “This is akin to day trading on margin & is the easiest way to ruin your financial life”. Of course this assumes all forex traders are day traders and one need only look to the Currensee community to realize that’s not the case at all. But I don’t think any of the Currensee members would call themselves a currency investor.

Forex Investing
But that’s not to say forex investing hasn’t been available. We’ve had currency ETFs and the like for some time now. They allow for both trading and investing in the forex market. Traders can obviously use them to play shorter-term term moves, though my guess is most lean toward the spot or futures market where more leverage is available. After all, day-to-day volatility in exchange rates is on the low end of the relative volatility scale among the markets.

The currency ETFs, though, allow investors to play the bigger macro themes in the market. Think the euro is going to blow apart? You can play the euro ETF. Think the Fed’s printing of money via quantitative easing is going to massively devalue the greenback? There are dollar ETFs you can play to take that position. Just in the last year we’ve seen a couple of 10%-20% swings in the USD Index that investors could certainly have played based on macro themes.

Investing in Someone Trading Forex
The Trade Leaders program adds another dimension to the possibilities of forex investing. I’ve already commented on some of its benefits (see The Benefits of Investing in Successful Traders). Above all that, though, is the opportunity the program provides you as an investor can put someone (or several someones) with a demonstrated track record to work managing your money, like mutual fund investing or other money management programs. Are there functional differences? Sure. The main concept is the same, though, in that you can have your money working in a way you likely wouldn’t be able to do yourself.

3 replies on “Investing vs. Trading in Forex”

John,

What are you trying to achieve (in educational terms) with your involvement in the Currensee network?

How can this network help a part-time forex trader like me? Bear in mind I am agnostic (not completely skeptical) about the value added by Web 2.0.

Can you explain the Trade Leaders programme in more detail?

Rod – You’re better off going straight to the source where the Trade Leaders program is concerned. Currensee has videos and runs webinars and other live events to that end. The basic idea, though, is that trades done by people you want to follow are automatically replicated in your account.

As for what I see as the value of the Currensee community, there are a couple of things. For a developing trader they offer the opportunity to see what other traders are actually doing with real money, not just want they say they are doing. The members of the community follow many different strategies (many of which are defined within the platform and can be reviewed), so members can see how different approaches are applied and perform. I also see the opportunity for traders to collaborate with each other through the platform in a more honest fashion than is possible in other ways because they can see each others trades, orders, and positions.

Excellent post. I always considered investing as just a longer version of trading. With trading, there are several timeframes a trader can choose to trade, which leads to how a trader can be labelled…

Very short-term traders are scalpers. Day traders have a longer time horizon than scalpers, but a shorter time horizon than swing traders. Position traders have even a longer time horizon.

Perhaps position traders can also be labelled as “investors”. Certainly, the longer the time horizon, the more importance fundamental analysis is over technical analysis.

In the end, it’s all just a bunch of labels. The bottom line is, it doesn’t matter what time horizon you choose to trader (or invest) in forex. As long as it’s appropriate to your own personality, style of trading, and tolerance for risk. When those factors are in synch with your time horizon, then you have a higher chance of making profits, and that’s what it’s all about.