Whenever you have been on holiday you are likely to have noticed that on some occasions every pound is able to buy you either more or less of the local money than you received the last time you went.
The reason for this, of course, is because of fluctuations in the rate of exchange between sterling and whichever local currency you want to buy.
Given that the price of a foreign currency might sometimes be high – and at other times low – there is an opportunity to trade in such an exchange, buying when a foreign currency is cheap and selling when it is more expensive.
Of course, foreign currency isn’t just about taking advantage of exchange rate fluctuations in order to make money, but simply for holiday travel money.
This foreign currency guide looks at both foreign exchange trading (FX trading) and holiday travel money.
Holiday Travel Money
Who may need travel money?
Anyone travelling to a country, whether on business or for pleasure, will need some form of local currency. Even if you plan to use a credit or debt card or travellers cheques for the major purchases, there may be times when you need cash. That is where travel money comes in.
Where to buy travel money
Getting the most cost effective deal on your travel money depends on the exchange rate you get. Shop around online as well as your local bank and Post Office to see who gives the most attractive rates.
Is there anything else I need to know about travel money?
When buying travel money, make sure that you are not charged an additional fee by the provider – or make sure that if you are charged a fee by the provider, overall their deal still works out the most cost-effective for you.
Also, do be safety conscious – just as you wouldn’t carry lots of cash around with you at home, the same applies abroad. You can always take the minimum needed and then get extra cash if you need it via travellers’ cheques or a low fee debit card.
Who may be suitable to engage in FX trading?
Foreign currency trading is not for the faint hearted. Certainly, it is possible to turn a handsome profit by buying cheap and selling dear – but it is just as possible to lose a considerable sum when trading takes the opposite turn. Being pleasantly surprised when a holiday may be costing you less than last year thanks to a favourable change in interest rates may be one thing – entrusting the foreign exchange markets with your hard earned cash and savings, on the other hand, is liable to be quite another.
Foreign currency trading, in short, may be a high risk venture and suitable for individuals who are prepared – and able – to take those risks.
Despite the risks, however, foreign exchange – commonly known as Forex – is the most active market in the world, with every day seeing $4 trillion traded on it, according to the City Index.
What does FX trading typically involve?
Logic suggests that foreign currency trading involves two parts – one currency being bought from the proceeds of another currency being sold. The variation or fluctuation in the relative strength of each currency compared to the other provides the critical differences in rates of exchange – the market in which traders are looking to make their profit.
It works by a trader taking a view on one currency strengthening – appreciating in the market’s jargon – against another currency, so that the latter is sold in order to purchase the former. At the time of selling, or “closing” his position, the trader relies on the price of the currency being sold is higher than the price at which it was bought – and hence the profit.
You might immediately recognise, therefore, how speculative is foreign currency trading, whether you are motivated by a long or a short-term position.
Is there anything I need to know about FX trading?
Speculative trading on a volatile currencies market might appear fairly straight forward to anyone prepared to risk the required funds. There are two main obstacles:
Predicting the rise and fall – the relative strengths of one currency against another – is subject to a huge host of possible factors and variables. If there were certainties, of course, the market might hold fewer attractions for high risk investors. Sensible forecasting of possible changes in the rates of foreign exchange, it something you might prefer to put in the hands of experienced professionals;
Even when your decisions to buy or sell may be inspired by your own reading of the changes in the relative exchange rates of currencies, it is still important to know just where the relevant markets are and how to access them. Once again, therefore, you might want to be guided by an expert in this particular field of trading.
It may be possible to reap significant rewards from foreign currency trading. But it is a high risk venture in which substantial losses may also be incurred. Unless, you have already built up many years of experience on your own account, you might want to rely on professional experts and advisers to guide you around the many pitfalls of the foreign exchange markets.