Currency Exchange Question?
if i were to exchange my canadian money into american while the CAN dollar is of greater value, then exchange the US money to canadian when the rates reverse, to ultimately make a profit, is this illegal? is this even practical or possible?
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Yes it is possible — it is called the currency trade (currency exchange) and it is a multi billion dollar business.
It is not illegal in the US or Canada, so long as your purpose is legal.
Practical is a more difficult question — in the first place there are fees to make the trade. As with most things, the smaller the amount and the lower the volume, the higher the fees. The best rates — fractions of a penny on the dollar, go to those who execute hundreds of millions of dollars in contracts daily. Depending upon how you execute the trade and how much (anything less than $100,000 USD is tiny), you can expect fees from 1% to 10%.
In the second place, the reversal and the size of the reversal are not things that can be timed…it could be days or years. What will you do with the money in the mean time? What if you need it now? Same questions you should ask for any investment.
In the third place, pure currency bets (straight currency exchanges like you suggest) and leveraged hedges ("Forex" ) are a ***** to time. Brilliant people like George Soros & Warren Buffett have made and lost billions from timing swings — get it right, big time win. get it wrong, big time loss. There is rarely a middle ground.
With the caveat that I do this and I am not explaining all the details, the "easiest" way to play a big currency movement for small investors is actually through boring old (unhedged) bond and stock funds. Pick a big, low cost conservatively managed index fund that invests in pure bond (government and high quality corporate) and broadly diversified stock investments in the "weak" currency and hold until the currency reverses strongly.
(Keeping in mind I’m an American) I’ll give you one guess as to why I bought a (relatively) huge position in the iShares MSCI Canada Index etf a few months ago and trimmed a little of the top recently. Two years ago started tilting my indexed stock investments toward international funds. By the crash I was buying 60/40 international to US. Guess when I started to rebalance?
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