What is a foreign exchange fund?
Foreign exchange, or ‘forex’ is a lucrative alternative to all other asset classes.
The performance of foreign exchange markets (currency markets) is largely independent of changes in equity and fixed income markets. An allocation to a foreign exchange fund should therefore be used to diversify the risks of a securities portfolio.
The foreign exchange asset class enables investors to participate in global currency markets and exploit pricing opportunities that arise from rising and falling exchange rates, regardless of market conditions. The forex market is the biggest capital market in the world by far.
But despite its great liquidity and transparency, respectable returns can be achieved with the necessary know-how. This is partly due to the fact that majority of market participants are not looking to maximise profits, such as companies hedging their operations against currency fluctuations.
Market inefficiencies are the result, which can be exploited by institutional trading desks. The investment universe is reduced and not nearly as complex as for other funds. So even when stock markets are falling generally, foreign exchanges make it possible to earn significantly above-average returns.
A successful forex investment – even if it is highly transparent – is extremely complex. Because changes on foreign exchange markets are not only driven by fundamental economic data, but also by market psychology and decisions by central banks. So investors are advised to rely on the know-how of specialist foreign exchange experts. You should also obtain advice from a qualified specialist before making an investment decision.