You'll need big pockets to copy Soros

It looks as if George Soros has done it again. He appears to have booked a cool $US60 million profit from betting $US1 billion that the Australian dollar would fall, as it did on Tuesday after the Reserve Bank cut the cash rate.

The Hungarian-American investor has won some very big currency bets over the past 25 years.

But for small investors thinking they may be able to emulate the great risk-taker, think again.

Placing a bet on the future price of a currency is fraught with danger.

Not the least because even currency experts have a very patchy record in accurately forecasting currency movements. It is trading on steroids.

For the novice investor it is akin to be being behind the wheel of a drag car.

The professionals, like Soros, bet big licks of money on small changes in the currency exchange rates. They are well-connected, have access to a lot of economic data and act quickly.

The professionals, like foreign exchange dealers and global banks around the world, will have likely taken their profits overnight before the local pyjama traders have turned on their computers.

Greg Canavan, the editor of Sound Money, Sound Investments, says small investors should leave currency trading to the professionals.

"They know how to manage the risk," he said.

"Small moves in currency exchange rates can mean very large moves in investors' capital," he said. Trading in currency for small investors, however, has never been easier. Contract for difference (CFDs) are a popular way for small investor to trade currency.

Investors can put in "stop-losses" to limit losses, but they are "geared" investments, which magnifies the gains and the losses.

Investors have to be very careful. The Australian Securities and Investments Commission has said that CFDs are "much riskier than a flutter on the horses or a night at the casino".

Exchange Traded Funds (ETFs) are listed on the Australian sharemarket and trade just like shares and can be bought through discount share brokers.

An investor could buy $10,000 worth of US dollar ETFs and if the Australian dollar falls in value against the greenback by, say, 10 per cent, the ETF would be worth $11,000, less fees and brokerage. Of course, it works in reverse should the value of the Australian dollar rise.

This story You'll need big pockets to copy Soros first appeared on The Sydney Morning Herald.