How to invest in currencies: advantages, disadvantages and alternatives

To achieve financial freedom, savers who choose to invest in currencies can diversify their investment portfolio with other mechanisms, such as crowdfactoring

Is it possible to invest money in one’s own money to generate, in turn, more money?

While this meta-investing may sound like nonsense, it is already a reality. And the tens of thousands of people who invest in currencies daily are proof of this.

There are infinite products in which to inject capital to obtain a return and achieve financial freedom: shares, investment funds, interest-bearing deposits, government bonds, commodities… and even currencies.

This last alternative is gaining in popularity as time goes by. Just look at the Triennial Survey of Central Banks on Foreign Exchange and OTC Derivatives Markets, conducted by the Bank for International Settlements in Basel. In April 2022, the average daily volume traded in the Spanish foreign exchange market exceeded $39 million. Figures that, compared to those of 2019, reveal an increase of 39%. It is estimated that globally, this figure rises to 7.5 billion dollars per day.

The Forex market, popularly known as the market that never sleeps, remains open from Monday to Friday, 24 hours a day. Undoubtedly, it is one of the great attractions for savers who decide to invest in currencies and participate in this decentralized system, which has already become the largest financial market in the world and stands as one of the great facilitators of monetary flow.

But what does it mean to invest in currenncies?

What does it mean to invest in currencies?

For some people, the biggest exposure to foreign exchange has been when they have had to exchange their currency when traveling abroad. However, it is also possible to make money with these transactions. And the operation of this market is not extremely complex.

To invest in currencies means selling one country’s currency to buy another’s currency. It is a currency transaction in which, for example, euros are exchanged for US dollars.

And where does the benefit lie? Well, as with many other investment products, there is a difference in the price of the currencies at the time of purchase and sale. Values fluctuate constantly, and people buy currencies in the hope that, in the future, their value will rise to sell them for a higher price.

When comparing two currencies, the one on the equation’s left is considered the base currency, while the one on the right is regarded as the quote currency. The exchange rate calculates how many units of the quote currency are needed to purchase one unit of the base currency.

Let’s take an example. If we are interested in starting to invest in currencies and we buy US dollars with euros, the price will be expressed by the abbreviation USD/EUR, the dollar being the base currency and the euro the quote currency. Although its price varies continuously, currently, the exchange rate is around 1 USD = 0.94 EUR. In other words, to buy one dollar, you would have to pay ninety-four cents.

This market allows multinational companies to do business in other countries much more easily. At the same time, small investors can diversify their sources of income, increase their earnings, and design an investment strategy that strengthens their financial freedom.

A dive into currency pairings

Before starting to invest in currencies , one must know the most popular currency pairings. While it is possible to trade any legal tender, it is most common to trade the most robust and popular currencies.

All currencies have their abbreviation for easy identification: the euro (EUR), the US dollar (USD), the British pound (GBP), the Japanese yen (JPY), the Swiss franc (CHF), the Australian dollar (AUD), the Canadian dollar (CAD) or the New Zealand dollar (NZD).

The main pairings occur with these currencies, giving rise to major currency pairs such as EUR/USD, USD/JPY, or USD/CHF. But there is one requirement for a transaction to fall into this category: one of the two currencies has to be the US dollar.

Savers who choose to invest in currencies may face a very high level of risk

Next are the minor pairings. The other seven most frequently traded currencies are still exchanged. But in this case, the US dollar is no longer present. This gives rise to minor currency pairs such as EUR/GBP, AUD/CHF, or JPY/NZD.

Finally, we should not forget the exotic pairings. These incorporate currencies that are more volatile and lack the strength and liquidity of the major currencies. In this category are currencies such as the Mexican peso (MXN), the Afghan afghani (AFN), the Moroccan dirham (MAD), the Qatari rial (QAR), the Singapore dollar (SGD) or the Hong Kong dollar (HDK).

When discussing about starting to invest in currencies , it is worth mentioning, albeit anecdotally, that regional pairings occur when a territorial criterion governs the transaction. Currency pairs are created according to geographic region, as with the exchange of European or Asian currencies.

Advantages and disadvantages of investing in currencies

What can motivate small savers to start to invest in currencies? Several benefits may convince them to get started in this activity.

To begin with, it is an ideal alternative for making savings profitable and achieving financial freedom, avoiding dependence on a single source of income. When there are pronounced variations in exchange rates, the gains that savers receive can be very considerable. This, in turn, is key to diversifying the investment portfolio and mitigating risk.

Although it is impossible to predict the ups and downs of currencies, studying events and news that impact a country’s economic stability and determining whether to buy, hold, or sell currencies is possible. However, this is not an exact science, and even citizens with economic or geopolitical knowledge can err in their predictions.

The foreign exchange market is very global and does not depend solely on the stability of one company, so some economic downturns less impact it. It is also borderless: it is accessible to all kinds of people, who can invest in currencies on a Tuesday at three o’clock in the morning if they wish to do so.

But there is also a flip side to the coin. Currencies can be volatile, and the investor may face substantial losses. On the other hand, if you want to buy unusual currencies, such as exotic ones, getting hold of them is not always easy.

Factoring, an alternative to investing in currencies

As we have seen previously, to invest in currencies can be as easy to make money as it is to lose it. It is not, therefore, a mechanism full of security guarantees since there will always be a very important component of uncertainty.

So, is there an alternative way to invest in currencies to make savings profitable and boost financial freedom without turning our backs on security?

Investors looking for an option with these characteristics will find factoring a very attractive instrument. Through this alternative financing system, savers finance companies’ uncollected invoices, giving them the amount they need in the form of a loan and receiving interest in return.

In general, factoring transactions are negotiated with companies needing short-term liquidity. For this reason, many factoring transactions are concluded within one, two, or three months, allowing investors to enjoy quick profits.

But how do we participate in this system? Simply use platforms such as Inversa Invoice Market. A very diverse invoice marketplace, where it is possible to find a business that adapts to the investor’s needs in all aspects, from the interest rate to the level of risk or the maturity date.

Two key points differentiate Inversa from other platforms. The first lies in its commitment to the real economy. There are many local businesses in this solution, and investing in them positively impacts the lives of people and communities.

To discover the second, looking at the date the interest is collected is enough. Interest is sent to the investor when the transaction is closed, and the company receives the money instead of being collected when the maturity date arrives. In this way, anyone can use their cell phone or computer to receive profits quickly from anywhere.

When starting to invest in currencies, the risk the investor assumes is very considerable since he/she has to trust that the price of the currencies he/she has purchased will increase. On the other hand, when investing in factoring, he knows in advance all the conditions and can make better investment decisions.

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