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I finally decided to get into investing (about 2 weeks ago - so please excuse any lack of knowledge that may be displayed), so I've been doing a load of research. One thing I am unable to find answers for is if there's any way to invest in things where we can take currency out of the question? i.e. if I buy a commodity in £ I would expect to sell it in $ if I wanted to - surely this is possible? Maybe only with certain asset classes?

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Currency is the fundamental unit of all the largest formal economic systems of the world, so the only way to remove the risk relating to it from the equation is not to participate in them directly or indirectly. That's a hard feat to accomplish! There are a few alternatives that seem promising at first but don't really remove currency risk, they just hide it, and it's important to see why.

The simplest thing that you could do is just work within a single currency - so if you are going to work and live in USD (US dollars, $), only invest in things that are denominated in USD. The problem is that only hides currency risk, because the financial results of anything you might invest in are subject to changes in the currency markets in all directions. For example, if USD suddenly surges upward in strength relative to others then American exports can be hard hit while encouraging outsourcing; a weakening in USD would encourage exports, but the reliance on externally produced goods can drive up cost of goods for both consumers and businesses, driving down profit.

The other thing you can try is a hedge. This is where you try to cancel the risk by investing in something that effectively would benefit from something happening that would hurt your other investment. For example, let's imagine a stronger USD would encourage US manufacturing, so you invest in US manufacturing sectors. But if you think a weak dollar would hurt manufacturing, say because of outsourcing to Mexico, you decide to also invest in Mexican manufacturing, which will involve their currency (regardless of how your investment choice is denominated formally).

To the extent that the seesaw of currency works like we say above, you've removed currency risk through your hedge, great! Just one problem - what happens if a weakening USD hurts manufacturing in the US and Mexico, such as by it moving to a third country (China, India, etc.)? Suddenly your hedge, meant to reduce risk, has actually increased it. Oops!

As to your wondering if you can buy something with one currency and choose to sell it in another, this unfortunately doesn't work to reduce currency risk even if it were available, because the changes in the participating currencies relative value would effect the price you can buy/sell this item for. Being able to do this effectively is just a currency market with extra steps - buying something for USD and selling in Euro ends up being the same as just buying USD directly and trading them for Euro.

This problem is universal, and it is not something that can be solved, only managed as part of your investment strategy. The most recommended way to do this currently is intelligent diversification, even if simply in the form of an index fund; the idea is that if you invest in, say, the entire stock market, the market will contain a mix of companies that win from currency changes and ones that lose, and so you reduce the risk that any one single investment would have.

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  • what I don't understand is - if I buy gold, I have gold. This should not be tied to any currency. Why can't I sell this in any currency I want? Commented Apr 28, 2019 at 11:09
  • @LostCrotchet Sure, if you buy actual gold you can sell actual gold in exchange for anything you want, currency or otherwise. But if you want to buy from major markets, they choose what the medium of exchange is (what currency they accept for buying/selling). You can do the same for stocks, its just that you would need access to a secondary market that is willing to trade what you have for what you want. It still wouldn't protect you from currency risk, because changes in currency will effect what that gold can buy you come trading time, regardless of the unit you pick.
    – BrianH
    Commented Apr 28, 2019 at 16:51

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