Forex investment funds have gained prominence in recent years, thanks to the popularity gained by currency trading. As we well know, the Forex market moves around 5 trillion dollars a day in operations and is considered one of the most liquid markets in the world. For this reason, it is not surprising that there is a growing interest in investing in such a large market. The problem is that not all investors have the financial ability to operate a high volume of money.
This situation was seen by brokers and financial institutions that, through the investment fund, gather people willing to invest their money or savings and don’t have the minimum amount to do so and thus have the opportunity to earn money through the so-called Forex investment fund. In this fund, the resources are invested by a specialist, in which at least 80% is invested in different currencies and following a pre-established strategy.
Throughout this article, we will get to know the basic elements of Forex investment funds, starting with a detailed explanation of what a mutual fund is, what a Forex investment fund is and what are the benefits.
What is an investment fund?
A mutual fund is a tool that brings together a certain number of investors or savers so that together they can invest in markets that they could not invest on their own. To achieve this, they assign the rights to their assets to professional managers, who will be responsible for monitoring the portfolio, in order to maximise returns.
These investment funds are composed of instruments such as currencies, shares, equities, fixed income, etc… And with them, you can make combinations using a strategy in order to increase the return of the investors’ assets.
Other tools are those designed for account managers to enable them to create their investment fund with their client portfolio, as well as the platform to trade that fund. The most popular of these is the MT4.
In the market, you can also access investment funds with similar characteristics, such as equity funds that can be from a portfolio of shares or Forex investment funds (we’ll talk about this later). It will always be important to consider diversification in investments and it is precisely a mutual fund that is an appropriate tool to meet this important criterion in finance.
What are Forex investment funds?
As mentioned above, Forex investment funds focus their investments in currencies of different categories, for example; in foreign currencies, in major currencies such as the dollar or the euro, in emerging market currencies such as the Mexican peso or the Brazilian real, among other options. All this is done to achieve a correct diversification, where they also make combinations by regions, geographical areas, level of risk, etc.
This type of fund has a double risk but at the same time a double return, which will depend on the revaluation or depreciation of the market in which it is invested and the revaluation or devaluation of the currency/s in which the fund is invested.
The procedure is similar to that of a normal investment fund, first, a certain number of investors are brought together, in order to raise a specific amount so that a specialist can trade that money in foreign exchange assets, to achieve the highest returns.
The portfolio of a Forex investment fund must contain at least 80% of assets in currencies such as the Euro or the Dollar. Investments can be made through derivatives or ETFs, not necessarily in currencies, generating a very diverse portfolio for the benefit of the investor.
Advantages of Forex investment funds
Investing in a Forex investment fund has certain benefits that an investor can use to his advantage, for example:
This is mainly because by investing in currencies such as the dollar or euro you can benefit from currency appreciation or depreciation. Your portfolio manager usually has first-hand information that they use to anticipate market movements.
It can even act as a hedge against market fluctuations or when other assets in your portfolio do not meet your objectives.
One of the great advantages of investing in such a liquid market is that you will quickly find people to buy your asset or sellers to acquire one. This is why there is an opportunity for managers to quickly buy and sell assets, knowing that they will be able to find people to make the desired transaction.
It works great when you have a close relationship with foreign markets (either for business or pleasure), you can make use of the value of money in this currency and avoid exchange fees.
It also works to diversify, you can use them individually or with other instruments that help you smooth out fluctuations in the market.
Why are Forex investment funds interesting?
Forex investment funds represent a very interesting investment tool. When included in an investment portfolio, it can be beneficial if it can be combined with other instruments other than foreign currency investment, to achieve substantial returns in the long term.
The main objective of a Forex investment fund is to take advantage of the fluctuations that occur in the market and to compensate for the returns that other assets could lose. Another factor that plays a predominant role is the liquidity that you obtain when investing in such a large market, increasing the possibilities of having better results through an excellent manager and a profitable strategy.