Futures & Forex Trading

Investing in Futures & Forex

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Futures and forex trading are alternative investments allowed as assets in self-directed IRAs. If you are familiar with the process, each has the potential to help you generate income for retirement.

The great thing about self-directed IRAs is that you choose the investments for the account. And, you base those choices on your personal knowledge and expertise. So, if you have a knack for forex and futures trading—explore the potential these assets present for your portfolio. But, if you’re not knowledgeable, you can always learn about these options to broaden the scope of your investments.

Foreign Currency Exchange (forex)

Forex investments can provide great diversify your retirement portfolio. These options have the potential to work well in self-directed IRAs that have small investing funds to work with.

The foreign exchange market is the largest financial market in the world. Investments are liquid, easier to control, and allow investors to start with minimal funds. Liquidity is the ability of a position to be converted from a holding and back to cash. This provides desired, quick trades for investors. In forex trading, you base your acquisition and selling positions on whether you think the value of currency you are buying or selling is on the rise or about to fall.

Futures Trading

These investments involve a contractual agreement between two entities: a buyer and a seller. The goal is to exchange a specific commodity at a predetermined price and date. The cost of the commodity is set at a price and terms agreed upon today, while the settlement takes place on a designated future date. The seller determines the sale price based on their anticipation that the cost of the asset will decrease in the future. Buyers agree on the purchase cost based on their speculation that the asset’s value increases by the date of the exchange.

Futures contracts include both hard commodities (those obtained through mining processes, such as coal, iron ore, oil and copper) and soft commodities (those that are cultivated agriculturally like sugar, soybeans and wheat). Investments can also include stocks and interest rates, as well as securities, currencies and intangible assets.

As with any investment in your IRA, all income generated reverts directly into the account on a tax-sheltered basis. These gains can then be used to reinvest in futures and forex, or other alternative assets permissible in self-directed IRAs.

Most foreign exchange markets are open 24 hours a day, from Sunday evening through Friday afternoon. This wide range of hours enables trillions of dollars to be traded daily and provides nearly unlimited access to the market, allowing more control than traditional equities markets.