Ask Money

Trading currencies

Chris Farrell Apr 30, 2010

Question: My husband has been looking into Forex trading. There is software to buy and initial investment. I am concerned that this is all a scam. But is it? Cindy, Macclesfield, NC

Answer: I don’t know if it’s a scam. Some of the outfits peddling foreign exchange trading are legitimate businesses and others are probably scams. But here’s what I do know:

Individuals trading in foreign currencies are engaged in rank speculation. It’s the same as going to the casino except its a much harder gane of chance to play. David Swensen is chief investment officer for Yale University’s endowment and he is a legend among professional money managers. His opinion of forex trading? “Sensible investors avoid currency speculation.”

The foreign exchange market is huge, with average daily trading volume estimated at nearly $4 trillion daily. The Wall Street firms, multinational corporations, hedge funds, commodity gunslingers and other major players in this market are extremely sophisticated, armed with the latest information technologies, with access to all kinds of data and algorithms, analysis and rumor. What’s more, we don’t really have a good economic theory of currencies that makes it easier to make money in the market, at least compared to stocks and bonds. Trends in the foreign currency market can and do depart from the fundamentals for long periods of time.

I know that there was a marketing push on late night cable TV (okay, now you know that sometimes I have trouble getting to sleep) during the Credit Crunch and the Great Recession. These were the ads that ran right after the pitch for how to get rid of your debt easily–right!. The investment pitch was that stocks and bonds were terrible investments (which they were at the time). The so-called smart money was taking stakes in alternative investments like currencies to make big bucks. And now “anyone” can do it.

I say, no way. Forget it. The only folks profiting from this agme are the sellers of software and strategy. Save your money and your time. Leave currency speculation to the pros.

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