How to safely invest in hard currency

In financial terminology, the currency trading market is called: forex, it is referred to as the foreign exchange market, it is a very important market, the daily volume of exchanges in it is more than $ 5 trillion, and it is the market in which all participants find themselves ready to sell or buy one currency for another.

And if you want to invest in the currency market safely, the first path to successful trading is responsibility and intelligence, as rash and thoughtless decisions can expose you to risks.

It is imperative to know that each country has its own laws and legislation, and understanding the trust and credibility of each legislator is important when choosing a trading broker.

How to safely invest in hard currency

How to safely invest in hard currency

We have collected 8 questions that can contribute to providing you with the basics of safe investment in the currency, answered by a group of experts in international finance and finance, namely: professor of International Finance Abu al-Jawad Kamal, a specialist in international finance and portfolio management Amin Mounir, and professor of Finance and institutional economics Saeed Youssef.

Does the diversity of an investor's portfolio contribute to security
Portfolio diversification is a basic investment strategy, with the aim of reducing risks and securing investment, as owning only one asset exposes the investor to 100% of the change in this asset, up or down.

Diversification is recommended not only in securities but also in different markets both domestically and internationally. 

Placing many products - such as stocks, bonds, investment funds, and money market products on many stock exchanges around the world in a financial portfolio, will allow the investor to significantly reduce market risk.

Diversification is possible only if changes in asset prices are not fully interrelated, paying attention to the transaction cost (price discovery, negotiation, contract enforcement), diversification does not eliminate all financial risks because there will always be a part associated with market fluctuations.

What are the characteristics of safe investment havens?

The financial market is based on the activity of two divisions whose function is different and integrated: 

The primary market and the secondary market, and the investor faces a myriad of securities, so it is useful to get an overview of the main categories of investments, to get acquainted with the level of risk in order to make the best choices (there are 4 main investment markets: the money market, the bond market, the real estate market and the derivatives market).

And it is important to understand the basics in order to get a good overview of investing, even if it is mostly professionals who manage the investment.

There is no risk-free investment broker, even a savings plan with a fixed interest carries the risk of increasing inflation during the investment period beyond the investment rate, and the concept of risk is associated not only with the performance of the product but also with the concept of time.

Which is safer: digital currencies, government bonds, or metals

We cannot absolutely say what is the safest, because it depends not only on the nature of the product but also on the market and economic situation.

And if you are looking for very high potential returns, then the stock market is obviously the ideal playing field. 

Still, if you are not a financial expert or a specialist in financial markets, it is likely that you will systematically lose money in the end, for this leaves the management to a professional representative.

Despite the fact that we are in different markets, under normal conditions, Treasury bills are less volatile than metals or commodities and virtual currencies. 

However, this trend changed during the corona pandemic, and Treasury bonds became more volatile than metals and virtual currencies.

Indeed, during economic crises, it is customary to see a lack of investor confidence in securities, turning to safe havens such as gold. 

During the corona crisis, we saw the same trend: a recovery in metal prices with an increase in confidence in virtual currencies (digital or crypto).

Is it still safe to invest in hard currencies in light of the current transformations

Investing in international currencies has never been a safe way, on the contrary, it is one of the riskiest markets in the world, there are even currencies such as the Australian dollar or the New Zealand dollar that are traded largely for speculation.

Over the years, the forex market has become a way for investment banks and hedge funds to speculate on the change in the exchange rate, and it is effectively possible to make gains or losses by planning operations in accordance with the change in the exchange rate.

It is clear that the investor is increasingly interested in virtual currency as a safe haven during the corona pandemic, 

however, this interest will not affect the role of central bank currencies at this time, and the dollar remains strong due to its correlation with a supporting economic and military force.

How can an investor in hard currencies keep up with the trend of changes

It is difficult to follow short-term trends in the forex market or profit from them all the time. 

However, major currencies are subject to the long-term influence of countries ' monetary and fiscal policy decisions.

For example, if the US announces a higher inflation rate than the eurozone rate, we expect the US dollar to fall against the euro. 

Thus, the investor should be attentive to economic and political announcements from countries whose currencies may be of interest in the medium and long term.

How to be able to know the market trends

There are several possible ways to determine trends on a currency pair: a fundamental analysis focused on macroeconomic variables such as interest rates, inflation rates, unemployment, etc., or technical analysis (or a chart) based on both chart visuals and technical indicators such as "ADX" (ADX), "rsi" (RSI) or "MACD".

Technical analysis consists in studying the development of the market using charts, in order to predict its future trends. 

Professional investors often use technical analysis, and the basic principle of technical analysis is the study of price dates to bring out the figure that heralds the upcoming trend.

According to this method, the repetitive nature of the cycles makes it possible to detect graphic figures that are repeated over time.

The main tools for chart analysis are support and resistance zones. Support is a range that shows investors ' interest in the currency whose fluctuations the interested person is following, and resistance is a price zone where investors are rare.

What risks can an investor face in hard currency in general

Investing in currencies is considered very risky, information and rumors are included in the price before its release.

There are other risks associated with leverage (debt-to-ownership ratio which is the strategy of using borrowed money to increase interest on investment) that operators in this market offer to their customers.

All investors who conduct commercial or financial transactions in foreign currencies are exposed to these risks, there are regular risks, irregular risks, periodic risks, in addition to market risks, and risk control is a priority and more important than the size of profits.

It is necessary for the investor to first determine his general hedging policy regarding transaction risks:

  • Measure the risk faced by the currency position.
  • Estimate the possible change in the price of the respective currencies.
  • Analyze the existing roofing technologies (taking into account possible coverings: maximum and minimum possible) and choose the most suitable of them.
  • How to avoid or face risks
  • In all markets, it is recommended to choose the right partners (banks, brokers) based on several criteria: legal legality, price competitiveness, quick execution of orders, availability, and advice.

And from an investment perspective, you should select a trading plan and strategy with pre-set sell orders (stop loss), do not use the leverage effect if necessary, and eventually, diversify investment instruments both domestically and internationally.

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