Can I hedge against falling interest rates in the US dollar by holding a forex position?

My CDs rates are falling because the Fed is depressing rates. That's also sending the dollar down. Since our economy is slowing the Fed will probably drop rates more. I'm thinking that if I pick a country paying higher rates I should offset a lot of my loss in interest income. I probably won't put a lot of money there, but at 100:1 rates forex accounts have a lot of leverage.

Is this a sound idea and if so, what currencies have good "carry trade" rates right now?

As the value of the USD goes down the EUR/USD and GBP/USD go up. Many people consider these good plays against a falling dollar.

Leverage is definetely one of the benefits in investing in the forex market (it can also be a curse if someone doesn't know what they are doing). I actually use a leverage as high as 400-1 on many of my long term hedge positions. I am able to earn a daily interest (7 days a week) on these positions.

There are longer term strategies that do not require the constant monitoring and active trading that is mentioned in the previous posts. I have one hedged position that I have not touched for over 6 months and it is doing quite well.

There are also no hidden fees and costs when participating in the spot Forex marketplace. You simply pay the difference between the asking price and the bid price when you enter your position. This is called the spread and it is the upfront "fee" that you pay when purchasing a currency pair. There is no spread charged when you closeout your position.

Best wishes for your success.

paul

Good plan. Learned a lot reading this answer. Spot forex is same thing as having to keep up all the time. Report It

FX is tricky business, even for the experts. It requires day to day monitoring, and you will probably get killed by the transaction fees. From my understanding, if you're not constantly exchanging, you will indeed be crushed by the combination of hidden and overt fees. Stick to what you can learn easily. FX is not for the slow mind or the busy individual.

Forex trading is an all-consuming obsession. It is not something a single investor can buy and hold. With leverage, the returns can be huge, but - more times than not - the losses are 100%. Many successful traders have blown up account after account before they learn to manage the phsycology of trading (if they do).

To be a profitable Forex trader takes lots of time, research, experience and commitment - particularly in this highly volitale market. You can learn more at http://www.nondealingdesk.com/index.php, where other traders share their experience.

Maybe consider an international or emerging markets mutual fund...

Good Luck!