FOREIGN CURRENCY TRADING IS AS RISKY AS IT GETS

*
*
*
*
* More
o BigCharts
o Virtual Stock Exchange
o WSJ Asia
o WSJ Europe
o WSJ Americas
o WSJ Chinese
o Financial News Online

SEARCH
SEARCH

*
*
*
*
*
*
*
*
*
*

Choose a topic to search news:

*
*
*
*
*
*
*
*
*
*

The Wall Street Journal Home Page
User Name: Password:
Remember Me Log In
Forgot your username or password? | Subscribe
WELCOME | Log Out
My Account Messages Preferences
As of 5:27 p.m. EDT Thursday, July 17, 2008 Set My Home Page | Customer Service

News

Today's Newspaper

My Online Journal

Multimedia & Online Extras

Markets Data & Tools

Classifieds

OTHER FREE CONTENT
FROM THE WALL STREET
JOURNAL
EDITORS' PICKS
Review: 'The Dark Knight'
Facing a Tough Fight
Against All Odds
Cottage Industry
Tastings
One Size Fits All?
MORE EDITORS' PICKS
BLOGS
Most Popular Posts
1. Three Changes In Store for Medicare Patients
2.
3. McCain Surrogate Fiorina Meets With Clinton Supporters
4. How Walkable Is Your Neighborhood?
SEE ALL BLOGS
MORE FREE CONTENT
>> Personal Journal
>> Personal Finance
>> Leisure
>> Markets Data Center
>> Video
>> Blogs
>> Forums
>> Interactives
>> Autos
>> CareerJournal
>> Real Estate
>> Small Business
>> OpinionJournal
>> MarketWatch
>> AllThingsDigital

[back to MSN Money]
MSN Money Homepage
MSN Money Investing
MORE FROM TODAY'S JOURNAL
$ Subscription may be required | Subscribe Now
PEOPLE WHO READ THIS...
Also read these stories:
People who like this also like...

* Exchange-Traded Notes: A Flop?17991727
While the bulk of new products focus on red-hot assets like oil and other commodities, dra...
* Can Wall Street Survive a No-Short Summer?17991729
The SEC's short-sale restrictions could cool a hot market, says Marketwatch writer David W...
* Saving made easy17991742
Three ways to make some easy trims in your spending.
* Should Hedge Funds Take Blame?17992160
Many on Wall Street have urged regulators to step up vigilance on hedge funds. Some say th...
* EBRD chief seeks clarity in review17991641
The new president of the European Bank for Reconstruction and Development said he will see...

NEW! Are you on Facebook?
See what content on this site is popular with your friends! Learn more »
Your Facebook Friends Are Reading

* Declining Value of a College Degree17976702
A four-year college degree, seen for generations as a ticket to a better life, is no longe...
Seen by 10 friends |
2 groups
Popular with people in the groups:
1. Day Traders
2. Facebook for UNICEF
|
San Francisco

What's This?
[x] close

You're seeing a preview of SeenThis? — a Facebook application that helps you discover the latest news, videos and more by showing you what's popular with your friends — both on Facebook, and on sites like this one.

Have a Facebook account? Get recommendations for content popular with your friends by adding the SeenThis? app.

Once you've added it, look for the "Your Facebook Friends Are Reading" section in the sidebar with your name and photo above it (only you can see your photo.)

Click to add SeenThis? now »

About SeenThis? | Privacy | Feedback
Provided by SeenThis?
Go to Page WHAT'S NEWS
• Tech Firms Rise Above Turbulence
• Write-Downs Squeeze Merrill Lynch
• Gore Urges Congress to Keep Drilling Ban
• BP Makes $1.75 Billion Property Buy
• AMD Names Meyer CEO
MORE
Go to Page WHAT'S POPULAR
1. Declining Value of a College Degree
2. Russian Billionaire's Yacht Makes Waves
3. Opinion: Voters Want Economic Leadership
4. Banks Help Boost Dow 200 Points
5. J.P. Morgan Shows Resilience
MORE

Foreign currency trading is as risky as it gets
Beware new products being pitched as way to counter dollar weakness
By JENNIFER WATERS
MarketWatch
July 17, 2008 5:27 p.m.

The steep drop in the value of the dollar has many individual investors flirting with dipping into foreign currency trading in order to defend themselves against the greenback's weakness.

They should forget about it. The risks are far too great for individual investors to try trading foreign currencies directly, financial experts warn. Indeed, it is a job best left to the big-name professionals who can offer indirect -- and safer -- ways to get in on the ebb and flow of the dollar.

NOTE: DOLLAR DEPRECIATION HAS CAUSED SEVERAL REACTIONS IN CURRENCY TRADING.

"Joe from Dubuque would be insane to play this game," said Dan Seiver, a finance professor at San Diego State University. "It's unlikely most individuals would have any idea what's going on all over the world 24 hours a day and it has the potential for an enormous amount of loss."

Investors and savers are likely to run into temptation, though, as financial institutions are pitching a myriad of new products and funds that make it easier to dabble in currencies.

EverBank World Markets, for example, offers traditional banking accounts and CDs in foreign currencies. An investor could buy $10,000 worth of, say, Aussie dollars and gain on the better interest rates in Australia.

Consider what's happened this year: The Aussie dollar is up 9% through the first six months. Investors who bought $10,000 worth of Aussie dollars in January when they were going for 87 cents to the U.S. dollar saw that rise to 95.5 cents, boosting the principal to 11,494.25 Aussie dollars. Add in half of the annual 5.24% interest rate and there's another 301.72 Aussie dollars for a total of 11,795.97.

Convert that account back to U.S. dollars today and that $10,000 investment has grown to $11,265.15 -- an 11% kick.

"Buying a currency is like buying a stock of a country," said Chuck Butler, president of EverBank World Markets. "Make sure to do research.... All the same types of things you do to buy stocks."

Volatile arena

While holding savings accounts or CDs in foreign currencies opens you to risk, trading currencies themselves is a real hot potato. Currency trading, which can be heavily leveraged, requires constant surveillance because of its sharp volatility.

What makes foreign exchange markets so scary is the huge leverage on these accounts, many at 30-to-1, with the brokerage firm fronting the bulk of the money. At that rate a $100,000 investment could give an investor access to $3 million worth of euros or yen.

That kind of leverage magnifies gains but can also result in steep losses.

"Currency markets are inefficient," said James Mitchell, director of the London-based fixed-income portfolio management for Russell Investments. "Investors must tread carefully because of their volatility."

Still, international diversification offers protection against a falling dollar. "If you're invested in equity markets it makes some sense to be globally diversified," Mitchell said.

Seiver recommends these three methods of hedging your bets in you think the dollar will continue to weaken: opening accounts in difference currencies, where allowed; investing in international mutual funds that hold only foreign shares (versus global funds that include U.S. holdings); or buying specialized mutual funds or exchange-traded funds that move inversely to the dollar. He holds the Pro Funds Falling U.S. Dollar Fund.

"It's the best way to indirectly have a play on the weak dollar," he said

Write to Jennifer Waters at jennifer.waters@dowjones.com
RELATED ARTICLES FROM ACROSS THE WEB
Related Content may require a subscription | Subscribe Now -- Get 2 Weeks FREE
Related Articles from WSJ.com
• Are Hedge Funds Root of All Evil Or Convenient Scapegoats? Jul. 18, 2008
• Calstrs Pension Fund Posts 3.7% Yearly Loss Jul. 17, 2008
• Business Europe Jul. 16, 2008
• Eurasia's Verdict Jul. 15, 2008
More related content Powered by Sphere
Click to format this article for printing Click to format this article for printing View a list of most popular articles on our site Find out about distributing multiple copies of this article Find out about distributing multiple copies of this article
YAHOO! BUZZ YAHOO! BUZZ
DIGG THIS DIGG THIS
My SpaceMY SPACE Get RSS Feeds GET RSS FEEDS
Return To Top
WSJ Digital Network:
MarketWatch|Barrons.com|AllThingsDigital
Dow Jones News Alerts|FiLife|MORE
Subscribe Log In Take a Tour Contact Us Help Email Setup Customer Service: Online | Print
Privacy Policy Subscriber Agreement & Terms of Use Copyright Policy Mobile Devices RSS Feeds
News Licensing Advertising About Dow Jones
Copyright © 2008 Dow Jones & Company, Inc. All Rights Reserved
DowJones
Close