"It's not so unusual to run out of someone else's currency."

- Jeffrey Sachs

Issue #248:Monday, July 28, 2008

CDs, ETFs, Options, Forex -
Where Should You Even Start?

Today's comment is by Sean Hyman, Currency Analyst and long-time Foreign Exchange instructor.

Good Day Currency Traders!

In Friday's issue, my colleague Jack Crooks introduced you to the world of trading exotic currencies on the spot foreign-exchange market.

Apparently, his article already caused a stir because one of our valued readers emailed us about it over the weekend. The reader asked us (and forgive me — I'm paraphrasing here): "Now there are exotic currencies? I'm getting a little confused about all the ways to invest in foreign currencies...How do I know which is right for me?"

So today, I'm going to answer his question. I'll take you step-by-step through the various investment strategies you can use to buy and sell foreign currencies, so you can decide which option works best for you.

Let's start at the beginning. When most investors think about foreign currencies, they usually only think about the kind of currency trading CNBC talks about...which is the spot Forex market. I myself am a fan of trading on this platform.

However, there are four ways to invest in currencies. Each trading style involves different levels of risk, or leverage. There are some fairly conservative currency trading strategies that involve absolutely no leverage at all. While others have high, "swinging from the chandeliers" leverage.

Let's take a look at each of these investment vehicles and the pros and cons of each.

The Easiest, Laziest Way to Invest
in Foreign Currencies

Just a few short years ago, if you wanted to invest in foreign currencies without any leverage you had to open up a foreign bank account. It was a good option if you wanted investment diversification. But unfortunately, your money was half the world away.

However, now you can buy and hold foreign currencies right here in the good ole U.S.A. — without leverage.

Thanks to EverBank, a U.S.-based FDIC-insured bank, you can buy CDs (certificates of deposit) that are denominated in many foreign currencies throughout the world. You can invest in everything from the euro, to the New Zealand dollar to the Brazilian real. In fact, you will find that they have over 20 currencies to choose from.

Basically, all you have to do is call up this U.S. bank, give them your U.S. dollars and they will convert them into foreign currencies and buy into the CD for you. It's as simple as that.

So Much More Than Your Average Dollar CD

Best of all several of these CDs earn twice the interest of a typical U.S. dollar denominated CD. In fact, one of these CDs returned 18.5% in its total return last year. How many investments can boast that this past year? Not many stocks even did it — that's for sure.

And if your chosen foreign currency appreciates against the U.S. dollar then when the CD matures and you convert back to U.S. dollars, your "actual" real return could be far greater than just the interest earned.

So if you want to just get away from the falling dollar and profit from it OR you have a long-term view on a foreign currency but don't want to "trade" or "leverage" then this could be your best investment option.

CDs aren't the only conservative way to invest in foreign currencies. There's one more. It is called a Currency ETF. These exchange traded funds are also non-leveraged instruments that track several of the major currencies around the world such as the euro, British pound, Japanese yen, Swiss franc, Canadian dollar, Mexican peso, and Swedish krona.

You can easily invest in currency ETFs from your U.S. stock brokerage account. In fact, these currency ETFs give you the ultimate diversification in your stock portfolio (that's a welcome development - particularly when stocks are dropping like a rock)."

In fact, while many U.S. stocks have hit 52-week lows recently, the Mexican peso ETF has hit a 52-week high.

Here's Your Chance To Hunt Financial Mammoths FREE... Until July 31st, 2008.

This is about "Big Game Hunting"...where traders have the ability to make annual salaries in just days - not weeks, months, or years.

But before you get started, let me be clear:

This FREE report will offend some people. I was only interested in writing this letter if I could totally, completely and safely "let my hair down," speak candidly, reveal very sophisticated methodology, and use "adult" language and examples.

If you're alright by this...you should read on.

Need a Little More Excitement?
Options Could Be For You...

Now let's say you like to live on the edge a bit. You're that kind of person who likes to push the gas pedal down a bit further. Then you have two more investment vehicles to check out.

Maybe you are already an options trader or have the ability to trade equity options through your brokerage account. If so, and you are familiar with "calls and puts" then you will be right at home with currency options.

Note: Buying a call on a currency just means that you think the currency will go up past a certain price (called a strike price) before the contract expires. A put just means that you feel the currency will fall below your "strike price" before the contract expires. If so, you make money.

Now the nice thing about currency options is that you have much less of a capital outlay to buy a contract than you would to buy the whole position outright. So your risk is small when you look at it that way.

With a currency option contract, you can make many times your investment in a short period of time. But please be cautious: You can also lose your entire amount invested by the expiration date. So this really does put option contracts in the aggressive column. (But like any option, you can only lose your initial investment — the purchase price of the contract itself.)

As Easy to Buy as Any Stock Option

Currency options are available on the Philadelphia Stock Exchange. You can call your regular stock broker and place call orders just like you're buying a call on Google or IBM.

By the way, some brokers don't even realize they can trade in these...so be sure to mention them by name — World Currency Options — and give them a heads up that they trade on the Philadelphia Exchange. Any broker can trade instruments on the Philly Exchange. Once you explain this to them, they will realize it too.

These are very simple to trade online or phone into your broker. In fact, Jack makes it "brainless" by giving you the exact symbol and what to tell your broker when calling in or placing your trade online, in his service World Currency Options. It doesn't get any easier than that.

While it's debatable which instrument is more risky (Spot FX or Currency Options), I say options — because they expire.

Options That Don't Expire...
Introducing the Spot FX Market

If you want an aggressive currency trading strategy that doesn't expire and trades 24 hours a day, then your "instrument of choice" is spot Forex (also known as currency trading or FX trading). You need a currency broker or market maker to trade spot Forex. This is possible at sites like FXCM.com, Interactive Brokers.com, RMBGroup.com, Oanda.com, etc.

These instruments trade in currency pairs like you see quoted on CNBC or Bloomberg TV. You will see them listed in pairs like the EUR/USD (the euro vs. the U.S. dollar) or USD/JPY (U.S. dollar vs. the Japanese yen).

These instruments have a high degree of leverage yet don't have an expiring contract. You could hold them for as long as you have margin to support the position.

Now just because a financial instrument has a lot of leverage, it doesn't mean that you have to use it all. For instance, you could have a Lamborghini that goes over 200 miles per hour, but you still shouldn't go over the speed limit.

Yet you decide how much to push the pedal down in Forex trading by the number of lots you choose to trade. Just as stocks trade in "shares" and options trade in "contracts," currency pairs trade in "lots."

With spot FX you can do things like earn daily interest on a pair (to the tune of US$20 a day, 7 days a week per lot) by investing in certain pairs for longer periods of time (weeks to months minimally typically)....or you can be a hyper-day trader...or something in between.

In stocks, you could be a Warren Buffett that holds stocks for decades or an intra-day trader...you can vary currency investing or trading all the same. It's all up to you.

Sean Hyman, Currency Analyst

P.S. Not sure which currency trading style is for you? Now you can capitalize on every trend and every corner of the currency market. You can even trade exotic currencies for the first time ever...for the rest of your life. That means you'll have the ability to "cherry pick" the most profitable trends - without EVER purchasing another trading (research) service again. But this offer is only available this week...until July 31st. Find out how you can become a currency trader in every corner of the currency market here.

Internal Sponsorship

Discover the "Secret investment of the Far East" that can grow your wealth by 13.5%...

This virtually "unknown" investment is packing a one two punch of profits and earnings that you simply won't find anywhere else...While offering the safety of CDs.

Click here to unlock the unlimited potential of the FAR EAST with FDIC protection...

Making 'Cents' of the Headlines

From Chris Gaffney, CFA and Vice President of World Markets at EverBank

What's Happened:

The Senate passed the massive housing-rescue legislation which had made it through the House on Wednesday.

President Bush dropped his opposition to the bill last week, so I would expect him to sign it quickly. The bill offers emergency funding to Fannie Mae and Freddie Mac along with establishing a US$300 billion fund to help struggling homeowners. My colleague Chuck Butler is NOT a fan of this bailout. Here's an email he sent me last night:

What I Say:

"The currency markets were dominated by a bias to buy dollars based on the Housing Legislation that passed last week...It's just another "bailout" I don't care how much lipstick they put on this pig, it's still a pig! Here's the skinny on the bail out...

"The bill features a combination of tax relief for homeowners, a new regulator for Fannie Mae and Freddie Mac, and a US$300 billion program to avert foreclosures. Also included is a dramatic Treasury Department proposal to help restore confidence in Fannie Mae and Freddie Mac by increasing their US$2.25 billion lines of credit with the Treasury, as well as allowing the government to potentially buy an equity stake in the firms.

"Another US$300 billion to help out...another US$300 billion added to the US$150 billion we already added to our debt earlier this year with stimulus checks...where does this end? Well, I'll tell you where it looks like it's all going to end. Can you say, 'we live in a banana republic?'"

Apparently the currency markets agree with Chuck, as the dollar reversed all its gains from last week

World Currency Watch
98 S.E. 6th Ave, Suite 2
Delray Beach, FL 33483
Phone: 1 800-682-1472
Fax: 561-272-5427
Email: info@worldcurrencywatch.com

Legal Notice: Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed under securities laws to address your particular investment situation. Also you should not base investment decisions solely on this document. The Sovereign Society expressly forbids its writers from having financial interests in securities they recommend to readers. The Sovereign Society, its affiliated entities, employees and agents must wait 24 hours after an initial trade recommendation published on the Internet, or 72 hours after a direct mail publication is sent, before acting on that recommendation. Also, please note that due to our commercial relationship with EverBank, we may receive compensation if you choose to invest in any of their offerings.

(c)2008 Sovereign Offshore Services LLC. All Rights Reserved. Protected
by copyright laws of the United States and international treaties. This
Newsletter may only be used pursuant to the subscription agreement and
any reproduction, copying, or redistribution (electronic or otherwise,
including on the world wide web) , in whole or in part, is strictly
prohibited without the express written permission of Sovereign Offshore
Services, LLC. 98 South East Federal Highway Suite 2 Del Ray, Beach FL
33483.