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hi, What's the Difference Between a Dollar CD and a Foreign Currency CD?

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hi, What's the Difference Between a Dollar CD and a Foreign Currency CD?

Post by zoro on Sun Aug 17, 2008 9:52 am

hi, nice work you people are doing.please,what's the difference between a dollar CD and a foreign currency CD?

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Re: hi, What's the Difference Between a Dollar CD and a Foreign Currency CD?

Post by Sean on Tue Aug 19, 2008 8:56 pm

As you may have heard, a foreign-currency CD is one of the simplest ways to buy foreign currencies.

You're not really trading one currency for another like in the foreign-exchange market. Nor are you investing with leverage like a currency option.

Instead, you're just buying and holding a foreign currency - just as if you were holding an average dollar-based CD.

Really, it's just a four-step process:

1. Decide to invest in a certain currency
2. Call your bank
3. Apply for the CD in a particular currency
4. Forget about your CD until it's time to report your holdings on your taxes each year.

In fact, it's so similar to your average dollar CD that it's easy to forget the extra benefits you're receiving by investing in a foreign currency CD.

So we thought we'd review these benefits quickly.

Benefit #1: You can actually beat inflation with a foreign-currency CD. Right now, you're average dollar-based CD only pays 2 - 4%. If inflation is soaring above 6%, then you're actually LOSING money over the long haul. But with a foreign currency CD, you can choose a stronger currency that has the power to appreciate faster than inflation.

Benefit #2: Two ways to profit. A foreign-currency CD earns interest similar to a normal dollar-based CD, but you also get an extra profit bonus if your foreign-currency appreciates in value vs. the U.S. dollar. In this way, your foreign-currency CD actually gives you two ways to profit.

Benefit #3: Instant diversification. If your entire portfolio is in dollars, then a simple foreign-currency CD gives you instant diversification to other stronger currencies around the globe. It's one of the best ways to inch into the currency markets, if you're not interested in trading.

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Re: hi, What's the Difference Between a Dollar CD and a Foreign Currency CD?

Post by Sean on Sun Nov 02, 2008 4:48 pm

Which Is Better?
Forex or Options?
This Checklist Helps You
Choose for Yourself

By Sean Hyman

Happy Weekend Currency Traders!Very Happy

In the world of currencies, there are two common ways to leverage up your trades to shoot for the double or triple-digit gains. You can either trade spot Forex or you can invest in currency options (called "World Currency Options" on the Philadelphia Exchange).

First-time traders often ask me: "Which is better?"scratch

Okay, truth be told: I'd love to tell you which is better. But unfortunately, it's a tough question to answer. Both strategies can produce large gains in a short period of time. Both strategies use short to intermediate trading periods. Both strategies depend on a certain skill level to put them to good use.

So in the end, depends on your own personal preference and trading habits. So I thought I'd use my comment today to help you decide for yourself which might suit your trading needs.
Option Traders: Buy Calls on Google
and the Euro in the Same Account!

Let's start with options first. Since 2007, the Philadelphia Stock Exchange (now known as the "Nasdaq PHLX"), has offered investors like you the opportunity to invest in six of the major currencies using regular stock-like options, known as "World Currency Options."

These options are dollar-based, so when you invest in them you're actually making directional bets on these six major currencies against the dollar. Many first-time investors like this because it narrows your focus to only six specific currencies.

I always say that if you're new to currency investing and you've traded options before, then these new World Currency Options may be a better place to start than Forex.

Here's why: The spot Forex market has its own rules and its own language. So if you're just starting out and you're already familiar with options, you can use currency options as a way to ease yourself into the currency-trading world.

Plus, you can buy options through your normal stock options trading account. You trade them the same way you trade stock options...by buying either a call or a put.
A Crash Course in Currency Options

Okay, let's assume for a second that you've never traded stock options either. If so, not to worry. It's pretty easy to get yourself up to speed to trade World Currency Options.

First, you have to know what you're buying. When you're trading options, you're either placing "calls" or "puts" on specific assets for a specific period of time.

You buy a "call option" when you believe a particular asset will rise about a specific price (called a "strike price"). In this case, you're betting a particular currency will rise against the dollar, before your option contract expires.

A put contract just means you believe an asset will fall below the strike price before your contract expires. So when you buy a "call" you are bullish on that asset. When you buy a "put" you are bearish on the asset.
The main advantage to currency options is you can trade them through the stock brokerage account that you have right now. Another advantage is you trade currency options just like stock options on a regular, familiar stock exchange. Plus, no matter what, if a trade goes against you, you only lose your initial investment. This way your risk is strictly limited.

Okay, so surely options have some downside right? Well, unlike the Forex market that trades 24/7, 5 days a week, you can only buy currency options Monday through Friday from 9:30am to 4pm EST (regular stock market hours).

Every options contract you buy also expires at some point, so it's possible for your contract to expire worthless. But as I said, your risk is still limited to your initial investment.

Also, the PHLX only offers six different currency options, as opposed to the Forex market that lets you trade currencies from all around the globe.

Without further ado, let's turn over to the spot Forex market that trades a minimum of US$3.2 Trillion each day...

No Commissions, No Currency Restrictions - Forex Traders Come Aboard!

The spot Forex market does have a few advantages over options trading. For starters, this market trades 24 hours a day from Sunday evening until Friday evening. So you can enter and exit a trade at pretty much anytime day or night. That's definitely useful for both grabbing profits and cutting losses, because I don't have to wait for the market to open in the morning.

So the hours offer more flexibility. Also these contracts (which are called "lots" in the spot market) don't expire. So as long as you have the margin to support the lots, you can keep trading for as long as you like.

You have almost unlimited currency trading flexibility. In fact, you can trade 20 to 30 currency pairs through most any spot FX broker. And you don't have to trade these currencies against the dollar. You can trade what's known as "crosses."

A cross is any pair that is traded that doesn't involve the dollar. Here are some common crosses that are traded for instance: EUR/JPY (Euro vs. the Japanese yen), GBP/CHF (British pound vs. the Swiss franc), EUR/GBP (Euro vs. the pound), AUD/JPY (Aussie dollar vs. the Japanese yen), etc.

You also don't have to pay commissions on your Forex trades, like you do with option trades. However, your broker (or "market maker") will still charge you the spread to place both your Forex trades and option trades. The spread is the difference between the buy and sell quotes, and brokers use it to allocate fees to clients.

Also, the spot Forex market has enormous volume going through these currency pairs. This not only makes the spreads small (i.e. you spend less on each trade), but it also makes the fills better than you will see in any other market, including options.

However, naturally there are a few disadvantages to trading Forex. For starters, you have to open a special Forex trading account to trade the spot Forex market, with a specific Forex dealer.

Honestly, that's not difficult to set up, but it's something to keep in mind. Also, like I said, Forex trading has its own language. So make sure you review your broker's trading manuals before you dive right in.

And last but not least, you have to manage your risk in your account. This means don't trade more than you can afford to lose, and keep tight stops because this market moves fast.

Speaking of moving fast, one thing that both of these methods have in common is that they are both leveraged instruments.

Leverage is often called a double-edged sword. It's a benefit because it lets you shoot for big gains, but that means you take a bit more speculative risk with your investment assets. For example, when trading options, it's possible to lose the premium you originally paid for your options contract.

When you're trading spot Forex, you can lose anything above your stop that you place on the trade. However, you would determine that level depending upon your risk tolerance.
Now the Question Is: Spot or Options?

For my own personal trading, I prefer Forex simply because I love entering and exiting a market at anytime day or night. I also love the tight spreads, the fewer fees and the better fills than trading options.

But like I said, World Currency Options have their own advantages. Also, I know the guy personally that helped to create these currency options. He's a great guy working for a great exchange. So either way you go, you can't lose. They are both two great ways to tackle the currency market.

Have a great weekend!

Sean

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Re: hi, What's the Difference Between a Dollar CD and a Foreign Currency CD?

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