Gold has held its own as a responsible investment option for centuries – but how does it stack up against the profit potential of trading currency on the Forex market?
Gold is a classic investment. It has provided a medium for wealth preservation for centuries, and it is now easily tradeable through gold ETFs. Gold ETFs enable the investor to purchase gold and net the benefits of the precious metal, while foregoing the challenges related to purchasing and housing physical gold. ETFs essentially act as a mutual fund for gold, with one unit of purchase representing, in most cases, 1 gram of gold. These units can be traded on the stock exchange just as you would trade a single share of a company, and transactions are generally managed in the same manner as a stock purchase.
Forex trading, on the other hand, involves a trader making calculated investments and speculations as to the relative valuation of a pair of specific currencies. For example, a trader on the Forex markets may feel that the value of the US dollar is poised to increase in relation to the Euro. Through a currency broker, the trader would then enact a currency swap and would then recognise a profit if the value of the dollar does in fact rise. Though both of these investment opportunities present the savvy trader with an ability to make money in both the short and long-term, they are two unique options that each offer noteworthy pros and cons. Let us explore some of the features and drawbacks to investing in gold versus Forex.
Intrinsic value: Gold, like other precious and scarce resources on the planet, has intrinsic value, meaning that there will always be somebody who wants to buy it, though not necessarily at the price you desire. Whilst physical gold can often be difficult to sell, gold ETFs are easier to negotiate for the majority of investors. Although trading currencies on the Forex market is a little bit different to trading gold, currency also has intrinsic value, and is even easier to trade through the Forex marketplace than gold.
24 hour marketplace? One distinct advantage enjoyed by currency traders that cannot be claimed by those investing in gold is access to a trading marketplace that is available 24 hours a day, 5 days a week. Forex traders can login at 2 o’clock in the morning and initiate a swap, and they can take advantage of after-hours news stories and foreign market activities to make immediate adjustments to their investment portfolio.
Leverage: One key benefit afforded by Forex trading is an ability to invest using high levels of leverage. Whilst this is something that should be approached with a certain degree of caution, leverage can enable a new or seasoned investor to make significant trades without a large upfront investment. Many Forex trading groups enable leverage ratios of up to 500 to 1, meaning that a $1000 investment can purchase $500,000 worth of currency. While this is a good thing for many traders, it is important to keep in mind that even small fluctuations in currency valuation can cause serious movements within an individual’s portfolio. You simply will not see this type of leverage potential available with gold investing.
Risk management: Many investment professionals consider gold to be one of the most stable and reliable media on the market. Whilst gold is certainly a standard-bearer when it comes to risk mitigation and consistent, albeit modest, returns on an investment, trading in the Forex marketplace provides a level of control that acts as a natural hedge against risk. Most online trading platforms require the trader to establish a margin call figure that will prevent a potential loss from wiping out the funds in a related investment account. This, coupled with the quick reaction times that are the hallmark of Forex trading, creates a controlled environment that naturally manages risk.
Gold is generally considered to be one of the safest investments on the market today. It is a natural financial defence against market volatility, and the fact that it is a scarce resource with universal appeal makes it undeniably attractive for any investor who wants to minimise risk and maximise return on investment. Forex, however, is a world of its own. Traders who have learned how to maximise the currency marketplace have shown that incredible wealth can be created in a short amount of time if a few key processes are put into place. In the end, there is no right answer when determining if gold or currency exchange makes a better investment. Each individual investor must weigh up the pros and cons of all of the investment opportunities on the market today in order to make an informed and intelligent decision. That said, countless investors have made significant profits in a short period of time by partnering with a reliable and reputable trading group specialising in the Forex marketplace.