Four ways to play the forex markets

published 17 October 2007

There are two main ways for a private investor to speculate on the currency markets, says Lucy Humphreys in Shares. The first is to use "margin" to control a large amount of foreign currency. This means opening an account with a broker (try London Capital Forexor E*TRADE) and making a minimum required deposit (typically £3,000). This sum then allows you to control a much larger amount of foreign currency through "leverage rates" that vary from 50:1 to 100:1. At 50:1, for example, a £2,000 deposit allows the investor to invest £100,000 of funds into his or her chosen currencies.

Spread betters, by contrast, such as City Index, Cantor, and Finspreadsallow investors to bet on movements in forex rates. Thus buying the £/$ rate at $1.8200 in early February and selling it at $1.8900 per pound in late February would have netted a £700 profit at £1 per point.

Another way to gain foreign-currency exposure is to open a mini foreign-exchange account, says Hugh Clayton in the FT. These are recent arrivals to the UK, and are offered by Forex Capital Markets (a subsidiary of FXCM Group of New York). The difference is that while similar in structure to a normal forex account, a mini allows investors to trade commission-free with a stake as low as £300, controlling as little as £10,000.