By far, the largest trading market in the world is the foreign currency market. Speculators make up only a small part of the spot (cash market) and forward (futures market) currency exchange transactions. So if you are considering speculating in this area, be aware that you are trying to out-guess the brightest minds & supercomputers at large banks and hedge funds; along with the political whims & expediency of government treasury departments.
The common portfolio use for holding foreign currencies is to hedge against the fall of your home currency. For most people, their salary and all their assets are based in their home currency and if that falls in value, so does their entire net worth and future earnings. For Americans, as an example, there has been a growing trade deficit with China for many years. And if China were to allow their currency to fluctuate, the U.S. dollar would fall against the Chinese yuan in concert with this trade deficit.
You can also include currency trading as an additional way to diversify your portfolio. I have read many, many books to learn about currency trading, and even day-traded the Swiss-Franc for six months. If you...
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