Forex

Russian said a lot of what needed to be said, I'll just note the following:

In the forex market, you're really just flipping a coin and paying for the privilege of doing so. Major banks trade billions of dollars a minute (if not faster), and they devote a lot of time and resources to figuring out where the market will go next. You will not do better than they do.

Usually that means over the long run you'll make the short-term money market rate, minus transaction fees. For small players transaction fees are relatively large, but if you don't trade often and keep your bet size down this isn't a terrible thing to do, in fact it gives you some diversification.

Full disclosure - I do this a little myself, for the diversification. I do not expect to make lots of dollars doing this. I expect to smooth the volatility of my overall portfolio, and nothing more.

Oh yes, I almost forgot ...

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It seems to me that most folks in the investing community feel like the dollar is not going to be all that strong in the coming years.

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That's a popular theme but the reality is that 30 year rates aren't all that great. Believe what people bet on, not what they about.


One last thought - since I aim for smoother returns and not for extra dollars due to outguessing those multibillion dollar banks, I simply buy a basket of currencies. If you are considering a specific currency (such as the zloty) then you are not really diversifying, you're making a directional bet. And like I said, that really is just flipping a coin in the long run, trying to outguess national banks is something the pros will not do any worse than you and me. After all, they are the market.

More on the zloty itself - if you believe the zloty will do well against the dollar, why exactly, and why is buying zlotys the best way to play that idea? Why not instead buy, say, Polish corporate bonds? Or Polish real estate?

I'm not joking or trying to give you a hard time, I'm trying to point out if you believe the zloty is a good buy, then it's a good idea to know specifically why and then consider alternatives that may work out even better. Or may not.

That's not a pure play though. (ETA: Not saying that's a bad idea though, just that the investor has to realize what it is and that there are other risks).

I'm going to Armenia today and I'll be back in 3 weeks. Do you want me to pick up a suitcase full of Armenian drams for you? Of course, that would only be about $1,000 worth.

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That brings us to the other point - if you believe in Poland's prospects you could instead of buying zlotys buy zloty-denominated bonds directly (since that's essentially what forex is) and/or other investments. It may be the better (and less expensive) play, but I don't know if that is true for an individual.

Not trying to blow cold water on the idea at all btw, just pointing out that there are multiple ways to bet on your idea and the zloty may or may not be the least expensive way to do so. Because just buying the currency in the long run really is just flipping a coin minus trading expenses.

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ok, well sticking with the Poland example then...

Say that at the core of this whole thing was a belief I had that the country's prospects are looking up in the future. If buying their currency isn't really the way to try to cash in on this future improvement in Poland's economy, what is?

You mentioned zloty-denominated bonds...do you know where I can find an example of such a thing? I am assuming this means a Polish savings bond, right?

I was looking at products on Vanguard, Schwab, and a couple of other sites and I can't find anything specific to individual countries. Would I rather just buy an index tracking fund for the particular country instead? Is there a US broker that offers products this narrowly tailored, or would I go with somebody out of London or Switzerland? Or is there another way I'm not thinking about? Again, keep in mind, I have plenty of years to see this sort of thing through

I know these are some broad questions, but the info given has been really helpful so far.

If you think the economy of a country is going to improve, I would absolutely not recommend trying to play it through forex or bonds. I would think the easiest way to take advantage of that is to do what foshizzle suggested. Depending on the type of economy (eg how that growth is achieved), the value of the currency may not necessarily go up (see: United States of America, all other importers with current account deficits), and fixed income products like bonds will suffer if the growth is accompanied by inflation and/or inflation-fighting on the part of the central bank (likely). There's much more to consider, depending on the circumstances, I'm just typing off the top of my head right now and generalizing.

ETA: You also have to be careful about funds to the degree that you need to look past just the name, especially w/r/t emerging market funds. Someone had an interesting writeup on this a few weeks ago, I'll see if I can find it later. It basically showed a few funds that were claiming emerging exposure, but the holdings were either 1) not in emerging markets (used Hong Kong and South Korea as examples, neither is technically an "emerging market"), and/or held positions in companies that were global in nature and derived most of their profit from outside of the country they were based in, so offered little exposure. Summary: you still have to do your homework on 1) the fund and 2) the holdings themselves.