Reuters Money

Investors, be forewarned: tread lightly when it comes to currency trading.

Whereas professional investors have more resources at their disposal to hedge, the average investor could be left in the dust — especially during a time where political unrest and crises are cause for big market swings in futures and currencies.

Individual retail investors “are the minnow in the shark tank; they might get some crumbs, but they’re playing with some really big, really aggressive players,” says Rick Brooks, vice-president of investment management at Blankinship & Foster. Brooks notes that while retail investors may trade anywhere from a few thousand to maybe a million dollars, professional traders are trading hundreds of millions of dollars a day, if not a minute, and are therefore privy to critical information.

“The retail investor cannot stand up against that kind of trading volume,” he continued. “If they’re lucky, they’ll fly under the radar and they might make some profitable trades, but generally speaking these guys are moving very large amounts of money and the retail investor is just going to be along for the ride.”

For investors who travel often or who get paid for work in another currency, dual exposure could actually be a good hedging mechanism since it provides insulation from day-to-day currency fluctuations. Great ways to do this include foreign property investments and buying ETFs or mutual funds in that currency.

George Middleton, financial adviser for Limoges Investment Management, says it’s easier for larger firms to better hedge and make riskier bets based on economic conditions because of their stake in multiple currencies. He says trading currencies can be beneficial to a retail investor if you’re looking for a longer-term investment.

“I own multiple currencies, but I buy them with the intent of holding on to them and it’s because of my concern for the U.S. dollar,” Middleton says. “If I thought the dollar was going to go up, I wouldn’t be holding other currencies.”

If you are going to trade currencies, here are five simple ways to hedge your bets:

* Open a bank account in a foreign currency. That way you can avoid unnecessary buy/sell exchange fees and capitalize on a larger spread.

* Consider competitive currencies. The Canadian dollar hit its highest level against the American dollar on April 1 while the Swiss franc is also relatively stable.

* Buy secure investments like ETFs or mutual funds. Some banks, like EverBank, allow you to buy CDs in other currencies as well.

* PIMCO bond funds are considerably stable and offer some currency exposure. The most notable is the PIMCO Total Return, America’s largest mutual fund with $237 billion in assets.

* Look into managed futures funds that blend commodity trading with currencies.

If you still want to place your bets with direct currency trading, it’s important to know that initial success does not necessarily guarantee future success.

“I think it’s a fool’s gold if you’re successful initially,” Middleton says. “The winds change very, very quickly and you could be caught heading the wrong way.”