Can you earn dividends forex trading? When people consider alternatives to ordinary stock trading, one option that commonly comes up is the currency trade. Generally referred to as the forex exchange, currency trading amounts to the literal buying and selling of world currencies (with other world currencies) with the aim of generating income from value fluctuations.
Some view it as a risky market, and it’s important to give some thought to why. One analysis compared forex trading to gambling, suggesting that the high volume of trading and rapid movement of prices makes for an unpredictable environment.
Can You Earn Dividends Forex Trading?
However, it’s also worth noting that most any form of investment can accurately be compared to gambling in one way or another. And having said that, there are also many benefits that people see in forex trading. Comparing forex trading to stock market investment, one article cited several features of the former that make it appealing to so many people all over the world.
These included market overlap facilitating 24/7 trading; general simplicity due to a small number of currency pairs making up the bulk of the market; and extraordinarily high liquidity, to name a few. Broadly speaking, forex traders tend to appreciate the combination of convenience and opportunity that the market provides.
Ultimately the idea of forex trading will either appeal or not based on your own preferences as an investor. Like any other sort of financial investment, it mostly comes down to how well you feel you understand the market, and whether the logistics of it work with your schedule and tendencies.
But, if you do decide to dabble in forex, one of your early queries might be this: can you earn dividends buying and selling currency?
In a strict, conventional sense, the answer is no. However, trading currency does expose you to shifting interest rates that can provide the opportunity for something very similar.
Simply put, if you hold a long-term currency investment, you earn interest each day on the holding, regardless of the overall gains in your investment. Thus, in a way, your interest earnings can function as a sort of dividend earning on your holding—or you can allow it to roll over consistently for an extended period of time, essentially compounding your investment. There are different ways to go about it.
It’s also worth noting, as explained in a very detailed analysis on something called carry on trading, that you can actually take advantage of specific interest rates by way of borrowing from a country with low rates and investing where rates are higher. This is a complex process and gets away from the basic idea of earning dividend income, but it’s still something to explore if you decide to test the waters in forex.
To summarize, you won’t be earning dividends in the traditional sense by delving into forex trading. But there are ways to simulate similar conditions if you pay close attention to the interest rates attached to your transactions.
Can you earn dividends forex trading? Have you ever tried? I’d love to hear your experiences in the comment section below.