Many people think that buying dollars is a good way to invest their money, to protect themselves from the volatility of their local currency. However, there are many other currencies in which you can also have attractive returns.
That’s why we want to share with you some currencies that you can use as a hedge. To do this, we identify the currencies with lower volatility, in which it will be safer to invest; but we also share with you the currency pairs that have higher volatility and, therefore, are of greater risk, although you can get better returns.
Less volatile currencies
Major pairs such as Euro/Dollar (EUR/USD), Dollar/Yen (USD/JPY), Pound Sterling/Dollar (GBP/USD) and Dollar/Swiss Franc (USD/CHF) generally have less volatility and more liquidity.
These currency pairs tend to be from the largest and most powerful economies, which generates a higher volume of trading, allowing them to have price stability.
A key indicator for comparing price variation between currencies is the ATR. For example, the monthly ATR for the dollar/Swiss franc (USD/CHF) pair is 0.0225 pips (Point in Percentage). This is a low difference compared to other currency pairs.
Most volatile currencies
Emerging pairs such as the US dollar-South African Rand (USD/ZAR), US dollar/South Korean Rand (USD/KRW), and US dollar/Brazilian Real (USD/BRL) are some of the most volatile.
For example, the US dollar/South African Rand has a monthly ATR of 0.8872, a clear difference of 0.86 points compared to the US dollar/Swiss franc (USD/CHF).
But perhaps, this difference is much more evident, if we take the value of January 31st 2019, when this pair was valued at 13.2558 units and on August 14th of the same year it was valued at 14.5495 units, which represents a return of 9.76% in about half a year, is that right? On other occasions, in one month it has advanced up to 25%
Recommendations for starting in the foreign exchange market
As you can see, foreign exchange can be a good source of passive income, however, you should take into account some aspects.
1. Where to invest?
The commercialization of currencies is generated mainly in the market called Forex. In digital platforms it is more efficient to buy and sell, and the price is more attractive compared to what banks or exchange houses offer.
2. Understand how this mode of investment works
The basic principle is to buy cheap and sell expensive; however, there are factors that affect the value of currencies, from monetary policy to various types of news. In addition, your profits can also be affected by the collection of commissions, as well as the purchase value and the sale value, in which, there can be a difference that even makes you lose money.
So, investigate all the possible factors that can affect your investment in foreign exchange, so that you pay less for commissions and earn more in the exchange rate. Also, look for basic analytical information to make it easier to identify when to buy and sell.
Try not to invest in something you don’t understand, and look for practice with small amounts or in simulators. Do not invest all your money in foreign exchange, always look for diversification.
3. There are no guaranteed returns
Price variations are not fixed. The indicators are based on historical averages, but the truth is that even specialists do not know what the minimum or maximum exchange rate is. So, even if there was a 25% return at a certain time, this does not mean that it will be repeated.