Using savings to buy euros/dollars?

Has anybody thought about buying euros, there is talk of it falling further. Using today's rates, how far would it need to fall before one earned an amount worthwhile of the punt?
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  • Ballard
    Ballard Posts: 2,845
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    If you buy cash you would have to see massive moves to counter the spreads. If you're thinking of buying electronically then you'll need an account to hold the currency once bought.

    You could look into the likes of spread betting but from your post you probably wouldn't consider yourself a currency expert so should avoid.

    In conclusion I'd suggest that you steer clear.
    I hate verisimilitude.
  • mariotr
    mariotr Posts: 8 Forumite
    I was about to ask the same question, so I might as well join this thread.
    My case is possibly different, because I already have a checking account in an EU country that joined the euro, so it would be a matter of doing a transfer (perhaps through a service like TransferWise, which charges only 0.5% of the total amount).

    Obviously not the best time in the world to buy euros (or any other currency for that matter), but the situation could get really nasty, and sadly this might be a better moment than a few months down the road.

    I guess I'll have to sleep on it...
  • Glen_Clark
    Glen_Clark Posts: 4,397 Forumite
    What makes you think you can beat the professionals?
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
  • CLAPTON
    CLAPTON Posts: 41,865
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    Has anybody thought about buying euros, there is talk of it falling further. Using today's rates, how far would it need to fall before one earned an amount worthwhile of the punt?

    how much are you willing to lose?
  • Take it u don't see a win then?
  • Ballard
    Ballard Posts: 2,845
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    Take it u don't see a win then?

    It is possible to win but unlikely. The spreads for currency trading for the average punter would mean that you'd need the price to move a fair amount before you would break even. It is a gamble where the cards are stacked against you.
    I hate verisimilitude.
  • eDicky
    eDicky Posts: 6,543
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    Take it u don't see a win then?
    The only time for a sure win on buying euros/dollars was when the referendum results were coming in and the pound began to plummet, so it was obvious what was happening.

    But now there is no certainty, as usual, and you could be buying with the pound at the bottom of its value - or not... It would be a very risky gamble.
    Evolution, not revolution
  • Pincher
    Pincher Posts: 6,552
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    http://www.insightinvestment.com/insurance1/ourinvestmentrange/cashmanagement1/ilfeurocash/

    Years ago, the offer to bid spread was very small, so you could play currency speculation by buying and selling EURO units, Japanese YEN units, etc. These days, they only have US$, EURO and sterling. Haven't used them for years.




    https://www.caterallen.co.uk/euro-bank-account-for-individuals

    "this account offers a euro Cater Allen VISA Deferred-Debit Card; any card transactions made (excluding cash withdrawals) are not applied to the account until the statement date."

    Which is useful if you travel to the Eurozone a lot.
  • Dan83
    Dan83 Posts: 671
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    I'm no expert in this but, isn't the idea suppose to be to buy when the £ is high (£1=$2) then sell when the £ is low (£2=$1)?

    Surly this is the time to sell, not buy.
  • bowlhead99
    bowlhead99 Posts: 12,295
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    Dan83 wrote: »
    I'm no expert in this but, isn't the idea suppose to be to buy when the £ is high (£1=$2) then sell when the £ is low (£2=$1)?

    Surly this is the time to sell, not buy.
    The OP is suggesting that the £ is worth more dollars now (£1=$1.24) than it will be when the £ is lower (£1= less than $1.24). They are certainly correct on that point of fact. They, like everyone, just don't know whether the £ will go appreciably lower in a reasonable timeframe, or not.
    Using today's rates, how far would it need to fall before one earned an amount worthwhile of the punt?
    If we assume you don't have massive amounts of cash with which to get the very best rates. A decent high street money changer will take 1.75% on the mid-price by tweaking the rates to buy or sell in his favour. Let's say your broker will take 2% on the conversion rate for simplicity of the maths.

    Example that follows is in dollars but the logic is the exact same for Euros.

    Say the mid price is $1.24 to the pound. You buy £10,000 of dollars which would be $12400 except you lose 2% on the trade and only get $12152 .

    Then the mid-market exchange rate falls 10% to $1.116. You feel this is enough of a fall, and ask the broker to sell your dollars and get pounds back. The $12152 is worth £10889 at 1.116 but you lose 2% on the conversion again so it's £10671 cash in your hand.

    So you end up with a £671 profit for a 10% weakening in sterling.

    Imagine instead the rate had risen 10%, from 1.24 to 1.364. Your $12152 is worth £8909 at that published rate. Less the broker's 2% to buy the pounds, leaves £8731, a loss of £1269.

    So, if you decide to buy dollars, you'll either win £671 on a 10% weakening of the pound or you'll lose £1269 on a 10% strengthening. Of course, a 10% strengthening is not the worst that could happen. Maybe the pound goes back up to 1.6 or something, then your $12152 is worth £7443 after the broker fee, a loss of £2557.

    So, if you have £10,000 spare to 'invest' in this venture you might win £671 if it goes well and you are able to cash in after the pound falls another 10%... or it might not go well for you and you end up losing £1269 or £2557 or some other big number.

    Is £671on a £10k bet 'worthwhile of the punt' for you? Probably not, in the context of maybe losing double that amount if the rate goes the other way by the same magnitude.

    If you wanted to make something more substantial, like £1k on the £10k bet (still not as much as you'd lose if the rate moved 10% the other way) you would need the rate to move far enough for the $12152 you'd bought to be worth £11,000 after conversion cost/broker fee, so you would need it to be worth £11,225 before the 2% conversion cost, so the rate would have to be $12152/11225 = $1.08 to the pound.

    Whether hitting $1.08 before it goes back the other way, is something that seems realistic to you, depends on your view of the markets.

    Similarly if you are doing it in Euros, £10k would buy about €11.1k at mid-market rates, but under €10.9k from a broker. To make the £1k profit on your £10k 'investment' you'd need the €10.9k to become worth £11k after broker fees. That could only happen once a pound is worth comfortably less than a Euro.
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