Best way to obtain long term forex exposure?

[VSntchr]

I understand that alot of people in here are trading forex over very short amounts of time and use the leverage system which only requires small movements in order to make a gain/loss.

I am interested in investing roughly $5k of my Aussie dollars in US dollars for a long term position (2 years+). ie buying US dollars while the aussie is so strong.

Other than merely going to the bank and ordering $5k worth of US dollars, do I have any other options?
Would it be possible to open a US bank account so I could also earn interest on the money?

I really don't know what options I have so any advice is appreciated!

Thanks!

 

[TulipFX]

Hi VSntchr

You have a couple of options.

1. Use a forex broker
2. Use a USD bank account

Advantages of a broker:
- You can use leverage (although it seems you do not wish to do so).
- You can hold your money in USD + take a short position on the AUDUSD (you have increased your exchange rate risk doing this. Even with no broker leverage used your theoretical leverage would be 2:1)

Disadvantages of a broker:
- Less secure then a bank (If you were going to do this I would recommend Dukascopy or OandA)
- You will pay swap rates every day on your short AUDUSD position (the interest rate differential) which will eat up your profits. These can be avoided by using an Islamic Account with no swap rates.

Additional broker comments:
OandA pay interest on your balance, like a bank would. However the US interest rate is currently negligible so you will not get much, if any interest revenue at current rates.

If you have to pay swaps at a broker it will chew up your profits quite a bit over time. Make sure you take that into account.

Advantages of a bank account:
- Secure. Well we all hope anyway.
- No swap costs. Although they will still occur but silently. What I mean is if your money is in a 0% interest US account you are missing out on 4% interest in an AU account.

Disadvantages of a bank account:
- If the exchange rate does not shift by more than the 4% interest difference then you have 'lost' money on parking your money in USD compared to keeping it here in AUD.
- Fees. Opening, account keeping, exchange and account keeping fees all need to be considered. You could be behind from the start with a poor bank exchange rate to convert your AUD to USD.

Additional Comments:

To avoid bad bank exchange rates check out these guys: http://www.ozforex.com.au/

I have used them before and have had no problem. I then went to my bank manager and negotiated a better rate based on what ozforex.com.au's exchange rates were.

OandA also do a similar service.

In the end I think the decision is this:

Go with OandA as a broker. 50:1 leverage. See if you can get a Islamic Account. Take a position equal to your account balance (ie only use 2% of your balance to cover your position) leaving the rest of your account balance to accrue whatever US interest you can get (none if you are using an Islamic Account I believe).

You could also go with OandA in AUD I believe now (don't quote me on that). That would allow you to receive AUD interest while using a small amount of your funds to cover your AUDUSD short portion using leverage.

In the end though, it is your decision. The interest rate difference between the countries is something you need to consider. Good luck with your sums.

 

[VSntchr]

Wow! Thankyou for such a detailed response! I feel like Im well on the way to making a better decision.