Being able to take advantage of currency fluctuations is one of the most beneficial advantages of holding a SIPP. To explain, foreign exchange is purchasing one currency and selling it against the value of another. One example of this could be selling an overseas property if you wanted to take advantage of the strength of the Malaysian ringgit over the pound.

If you retire to a different country and drawing down income in that country’s currency will mean you are subject to a currency fluctuations against the pound. The option to invest and hold money in a different currency can mean that you can forward plan for these movements. Potentially saving you a great deal of money

Buying And Selling

To purchase currency successfully, investors look to purchase one currency and sell an equivalent amount of the second currency to cover the costs of the original, for example buying Euros against Sterling. Investors look for a currency where they feel the exchange rate will go up relative to that of the currency being purchased in the hope to make a gain.

Although the majority look to make a profit from the buying and selling of currency, this method of investing is also useful for those who are looking to purchase a holiday home or even retire abroad.

There are two basic methods to investing in currency. Firstly, there are ‘spot transactions’ which are suitable for those who require to purchase or sell a currency immediately. The other option is ‘forward contract agreements’, which exchange currencies on a pre-determined date and are used more for longer term investments.

There are two types of ‘forward contract agreements’

• Fixed forward contract: Purchasing a currency for a fixed rate on a pre-determined date. This method is used to protect investors from fluctuating currency prices.
• Time flexible forward: Essentially the same as a fixed forward contract, however a specific date is not set. This allows you the flexibility to get around possible payment arrangements, however this type of contract is restricted to the major currencies.