Currency Investment

Trading spot forex is only one of the vehicle you can ride on when in comes to currency investments. There are actually a few, all requiring certain knowledge and expertise to take advantage of, with different sets of risks and rewards.

It is easier to differentiate these currency investments in terms of their duration: short-term or long-term.  You can pick the type that suits your needs: long-term if you prefer to buy and hold safer investments for months or even years. Short-term if you're more interested in quick trades (albeit riskier), in shorter timeframes like mere minutes or days. The table below separates the different sets of currency investments, so you can look at the opportunities that suit your needs best straight away.

Forex spot: Currency traded in the spot market are settled in cash on the spot at current market prices, as opposed to forward prices.

Forex option: Currency traders are given the right, not an obligation, to buy or sell a currency pair at a given exchange rate at some time in the future. Forex option is not a sharia-compliant investment vehicle.

Foreign CDs:  Certificates of deposit are negotiable certificates issued by banks, representing their obligation to repay funds deposited with them, earning specified rates of interest over a given period of time; ranging from a few weeks to several years. Investment vehicles that involve usury (charging or receipt of interests) are not sharia-compliant. 

ETFs: A currency ETF works like an index fund that holds physical units of the underlying currency, and closely tracks its price. It trades just like stocks on an exchange. As such, when you buy or sell ETFs, you have to pay commission to your broker just like you do trading stock. They also do not use leverage, so you can't expect large returns.

The currency ETF can be the easiest long-term investment:  You can buy as little as one share, and sell short as well. They're also cheaper than you would spend on the average mutual fund, while getting the diversification of an index fund. You can take advantage of the global trends in currencies right now by investing in ETFs for months of even years in some commonly traded currency ETFs such as the Australian dollar (FXA), British pound (FXB), Canadian dollar (FXC), Swiss franc (FXF), Japanese yen (FXY), euro (FXE), Mexican peso (FXM), Swedish krona (FXS), Russian ruble (XRU), etc.

ETNs: An exchange traded note is an emerging product in forex, but not necessarily a more attractive one right now. Like ETFs; they are traded on the stock exchange. As a strategy they are suited for the long term. ETNs have very little liquidity, and so have wider spreads. It also takes longer to enter and exit a position and may also have slippage.