25

3 Steps in Accumulating Physical Foreign Currencies.

Buying Physical Foreign Currencies.

For as long as we can use cash, this “old school” form of investing will remain viable.

It is the same as investing in any asset really, but a lot more direct. Instead of buying Real Estate, why not buy US Dollars? Instead of buying Stocks, why not buy Euros? Instead of buying Mutual Funds, why not buy a blend of different foreign currencies like Australian Dollars, Japanese Yen or Canadian Dollars? — The Physical kind, you know, Paper bills that you can purchase stuff with.

Where and How Do I Purchase Physical Foreign Currencies?

Physical Foreign currencies can be purchased through your Bank or a Bangko Sentral ng Pilipinas (BSP) Accredited and Licensed Money Changer. Normally, they require 2 Government issued ID’s and travel documents. However, if you are not travelling, you can ask them to help you in finding another acceptable purpose for purchasing the Foreign currency.

Tip#1: If going through a Money changer, do not just go to a branch of a Money changer in the mall or airport, those branches are usually One way transactions, meaning they will only purchase US Dollars or Foreign currencies and not sell to you. Instead call up their head/main office to first reserve the foreign currency. They will take your contact details and contact you when the amount you requested is already available. You will have to follow up as they forget sometimes. Here’s a complete list of Money Changers or FXDs (FX Dealers) from the BSP as of June 30 2017

http://www.bsp.gov.ph/banking/FXDMCRA_registry.pdf

Tip#2: Always make sure that they have an up to date BSP License as a Money Changer. Ask the Money changer for their license number and look them up in the link provided above or Just call up the BSP Hotline and inquire if the Money changer is properly licensed. The BSP hotline is: (632) 708-77-01

Tip#3: It helps a lot if you have a good standing relationship with the bank or the Money changer, otherwise they may not be as flexible in fulfilling your request.

Tip#4: Canvass and shop around for the best prices available, so, be patient, a 1 to 2 cent difference in price can have a big difference in how much you profit or lose from the transaction.

Tip#5: If you do not know how to “Time” buying and selling currencies, just purchase in small amounts so you can “cost average” (I talk about what you need to consider in analysis in step 3 below)

Tip#6: You cannot buy Foreign currencies from a bank and deposit it in your bank account in the same bank. Weird? You bet, it is a very old banking rule that was never updated until now. So you will have to wait for about 7 banking days before you deposit it into your bank account. Of course, and just to be clear, you have to open a bank account, usually a passbook savings account, in the Foreign currency denomination i.e. USD

Tip#7: Don’t rely on the Interest income that you will receive from the savings account, instead the purpose is to sell the foreign currency at a higher price later on. In the steps below, I will outline how to do that

3 Steps in Accumulating Physical Foreign Currencies.

Step 1: “Pick It”

Pick a Foreign Currency you want to invest in. Then pick the currency you want to purchase it with

In this example, I’m choosing to buy (invest) in the US Dollar.

Next, what currency are you going to buy the USD with?

Now, the assumption is, if you live in the Philippines, you will use Philippine Pesos (PHP) to purchase USD. (If you live in another country let’s say Japan, you will probably use Japanese Yen to purchase USD). Now you don’t have to live in that country, you can really just pick any other currency you want to purchase the USD with.

So, for this example I will use PHP. We will purchase USD with PHP

So the first step is to pick 2 currencies. Because if you don’t it will be harder to track if your Foreign currency investment is making or losing money over time. (I’ll talk about how to track it in Step 2 below).

In the world of Forex Trading/ Investing we call this “currency pairing”

For this example, the proper format of Currency pairing will be USD/PHP. Now if you choose a different currency pair, say USD/JPY what am I saying? I’m planning to purchase USD with Japanese Yen or JPY Get it?

Step 2: “Track It”

Track your Investment: Record the volume and purchase price of the Foreign currency when you bought it.

When you invest in foreign currencies, like any other asset you need to know your starting price and track the performance of your investment. This way, you will know if you are making money or losing money over time.

So in our example, I bought $2,000 at P52.10. Volume is $2,000 and the purchase price is P52.10. This translates that you spent P104,200 Pesos (2,000 x 52.10 = P104,200). Record all of that in a simple format Like this:

Date Currency Price Volume Peso Value
May 22, 2018 USD P52.10 $2000 P104,200

Now that you have recorded it, you have to wait (and pray) for the price to go up. Let’s say after 1 month it goes up to P53 per USD, and you sold it at P53, then this is what it will look like on your tracking sheet:

Date Currency Price Volume Peso Value P/L
May 22, 2018 USD P52.10 $2000 P104,200
Jun 22, 2018 USD P53.00 $2000 P106,000 P1,800

Notice that I added another column called P/L which stands for Profit or Loss. In this example, I gained P1,800.

But what if after one month the price goes down to say P51, what do I do? Well, if you sell at this point, you will have a loss of P1.10 per USD (51 – 52.10 = -1.10) or -P2,200 real loss, but if you want to wait it out and not sell yet, the -P2,200 will just be “floating” or “paper” loss. So, I’m adding another column called “Floating P/L” so you can record all of this properly

Date Currency Price Volume Peso Value Floating P/L P/L
May 22, 2018 USD P52.10 $2000 P104,200
Jun 22, 2018 USD P51.00 $2000 P102,000 (P2,200)

The Floating P/L column is not yet your “real” profit or loss, it just helps you track if you are profiting or losing at that point in time.

Now, let’s say you wait it out, for another month, your prayer gets answered and it jumps to P53.50 (Yehey!)  So you decide to sell it already at that price — you just gained P1.40 per USD or P2,800 (2000 x P1.40)! this goes to the P/L column now to reflect “Real Profit or Loss” and this is what the complete recording system will show:

Date Currency Purchase Price Volume Peso Value Floating P/L P/L
May 22, 2018 USD P52.10 $2000 P104,200
Jun 22, 2018 USD P51.00 $2000 P102,000 (P2,200)
Jul 22, 2018 USD P53.50 $2000 P107,000 P2,800

Now the recording system I showed you is just a very simple one, you can design your own but remember to have one, without it  you cannot effectively track if you are making or losing money and if it is time to sell or to hold on just like any investment you make.

Step 3: “Time It”

Learn how to “Time Buying and Selling” of Foreign currencies

The first 2 steps are simple mechanical steps to get started in investing in a foreign currency like the USD, however Step 3, is the most important step of them all. – Understand what you are doing first in terms of “Timing” of when to buy and when to sell.

To know timing, you will need to learn how to analyze price movements in the forex market. While there are many analysis tools and models out there, pick one that suits your personality.

To generalize, and provide you with an overview, there are 3 main analysis types that you can choose from. There is Market Sentiment Analysis, Fundamental Analysis, and Technical Analysis.

Personally, I tried by telling myself, simple is the best and so I chose to just use 1 of them. I started with Technical analysis first, while it showed some results, doing it alone did not provide a very consistent way of timing the market. I realized very painfully that while simple is best, simple is incomplete.

So, I added Fundamental analysis, and it helped but it still wasn’t “complete” then I learned how to add Market Sentiment analysis and it showed a lot of promise. And so here’s the point of step 3, in order to properly invest in Physical Foreign currencies, timing is the most important step, and to understand timing, you have to learn how to incorporate 3 analysis methods to the mix.

If you are interested in learning more about this, do leave a comment below to start a meaningful conversation.  I’d also appreciate a comment if you found this article helpful (or not) and lets take it from there.

Talk to you soon!

-Mark So

Founder, Forex Club Asia

25 thoughts on “3 Steps in Accumulating Physical Foreign Currencies.”

  1. Hi Mark, very interested to learn about physical forex investing.

    My main question is what are the strategies trading offline and how it would differ from trading online? For one we won’t be able to use leverage since we won’t be dealing with a broker. Thus unless we have a lot of cash, the amount we can buy (lot size) will be small. I believe the spread is also much higher when buying directly from banks unlike online brokers that normally have a 3 pip spread. To earn from this, the target price must be set higher and the holding period much longer unlike the trades we do online which we close out in a few days. Finally we won’t be able to do naked shorts, so our bias is to look for trades to go long.

    I eagerly await your article and consider this as part of my continuing forex education.

    Best regards!

    • Thanks Eric. The nature of offline trading is more long term as compared to online trading which is shorter term. Thanks for the feedback I will make sure to address that in the upcoming articles. Please do spread the word to all your friends who might be interested as well

  2. How about like a personal money changer for close relatives and friends? Want to know more about the timing.

    • Hi Mark, opening a Money Changer outlet can be easily googled. You just need to follow the steps to apply under the BSP. That is a whole different topic. For that kind of business you need to understand how to make money with Spreads or the difference between buy and sell prices. But again that is a topic for another day

  3. Hello Mark. I’ve been studying forex trading during my spare time for a couple months now and I am practicing online trading using a demo account. Do you have a course to offer to improve my trading skills to become a professional trader?

  4. Thank you Mark for this article.I want to learn more about investing physical cash.I will wait for your next articles.

  5. Hi Mark.If you bought usd already as investment.Can you use this uds to buy gbp(sterling) .It’s like you’re planning to just focus on usd/gbp if usd/php isnt good yet.Thanks in advance.

    • Yes, but if you pass through either a bank or a money changer, they will convert it first to PHP then from PHP they will sell you GBP. It’s cheaper to actually do it through an online forex trading account. but Physically, it is best if you just buy GBP directly from PHP (Peso)

  6. Hi Mark, I appreciate the valuable information you shared to me. Yes, I’m interested to learn from you in full details the procedures in conducting the market sentiment analysis, fundamental analysis and technical analysis to catch favorable trades in forex.

    • Great. Looking forward to seeing you in my seminars. The link I gave has the step by step instructions for enrollment. Just let us know if you need further assistance. thanks

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.