Currency Investment With Tactical Trading
by John Beatty
Foreign currency deposit accounts — for German Deutschemarks, British pounds and so forth—are not
routinely available in the cities and towns of the United States. In fact, before January 1989, federal law
prohibited such accounts. As a consequence, many believe that currency investments comprise only the
trading of futures and options. And unfortunately, for many investors, futures and options are definitely
Should you want to move your funds across foreign currency deposit accounts in a bank, however, you do
have interesting investment alternatives. Currency exchange rates have numerical volatility for long-term
and short-term trades just the way that stocks do. You can also engage in arbitrage, simultaneously
buying one currency while selling another. For two currencies, relative changes occur between the
exchange rates and also between the interest rates paid on deposit accounts. Banks also offer, not futures,
but forward currency contracts. They also offer interbank currency options. And some banks will even
lend up to eight times the holding.
Figure 1, an output from the alpha-beta trend program detailed in an article by Anthony W. Warren,
depicts the moving exchange rate of the German mark, showing that particular currency's volatility and
potential for trades.