If you are interested in investing in emerging currencies, maybe this will help you. Most traders of Forex usually go with big eight currencies. These are USD, EUR, GBP, JPY, CAD, CHF, and AUD. But for the biggest rewards, they go with emerging currencies.
Emerging currencies are basically those that are associated with countries that are considered emerging markets. These countries are transitioning towards transparent and open economy. This categorization applies to even large powerhouses like Brazil and China as it does to small countries.
The risks with emerging currencies are higher compared to big eight currencies. They can be subject to internal disruptions and government actions. In an emerging market, sudden changes in monetary policy can be common. Also, politics may be a problem. The problems may be a new government deciding to limit foreign investment, a civil war, or as a reaction against a threat from abroad.
The reward though for sticking with emerging currencies can be great. There is a potential for long term growth and large upswings. As in the case of the Indian rupee. It reached record lows in August which cause some traders to get out of that currency while others stuck with it. So far, recovery has been modest but for those who stick with it there has been opportunity for profit. Many thing that the government’s response to the rupee may deliver rewards to investors at least in the long run.
Investors who do want to put money in emerging currencies should take steps to protect themselves. They should spread their positions across a number of currencies so if a country defaults they haven’t lost all of your money. They should also keep a tabs on the economic and political moves in currencies that you have invested in.
So as you can see emerging currencies has many risks and rewards. It is best to do your homework before putting your money in it.