Currency ETFs are for those who are looking to speculate or hedge foreign currencies.
A currency exchange traded fund attempts to track the movement of a particular currency pair such as the EUR/USD. The fund will also aim to into account the differences in interest rates between the two currency pairs.
There are now a good number of currency exchange traded funds that cover many of the major currency pairs.
US Dollar ETF There are many US Dollar Exchange traded funds, that aim to track the currency against the pound, euro, swiss franc and many more.
Euro ETF Formed in 1999, the euro/dollar currency pair has become the most liquid currency pair traded on the currency markets. There are many euro exchange traded funds including short euro etfs and inverse euro etfs. Some of the most well know euro ETFs include:
- FXE – CurrencyShares Euro Trust
- EU – WisdomTree Dreyfus Euro ETF
- ERO – iPath EUR / USD Exchange Rate ETN
Canadian Currency ETF The canadian dollar is often referred to as “loonie”. These funds aim to track the Canadian dollar against the US Dollar. Loonie is also a commodity currency, as historically prices have been closely correlated to the price of crude oil. Some popular Canadian Dollar ETFs include:
- CUD – ELEMENTS USD / Canadian Dollar Exchange Rate ETN
- FXC – Currency Shares Canadian Dollar Trust
Swiss Franc ETF The Swiss Franc is often referred to as “swissy”. The currency is often seen as a safe haven, especially in times of crisis. Some Swiss Franc exchange traded funds include:
- FXF – CurrencyShares Swiss Franc Trust ETF
- SZE – ELEMENTS U.S. Dollar/Swiss Franc Exchange Rate ETN
British Pound ETF The british pound exchange traded funds track the pound versus the US dollar. This is a very liquid currency pair. Some British Pound exchange traded funds include:
- EGB – ELEMENTS British Pound /USD Exchange Rate ETN
- FXB – CurrencyShares British Pound Sterling Trust
- GBB – iPath GBP/USD Exchange Rate ETN
Australian Dollar ETF These ETFs track the Australian dollar against the US dollar. This pair is often referred to as “aussie” or “aussie dollar”. It is also known as a commodity currency as it has historically had a close correlation to the price of gold. Here are some Australian dollar exchange traded funds:
- FXA – CurrencyShares Australian Dollar Trust
- ADE – ELEMENTS Australian Dollar / USD Exchange Rate ETN
Japanese Yen ETF The Japanese Yen has been a popular currency over the years. Throughout the late 1990s and early 2000s it has the lowest interest rate interest rate of all the developed nations, this attracted a lot of carry traders trying to profit from the low rates. Some Japanese Yen exchange traded funds include:
- JYN – iPath JPY / USD Exchange Rate ETN
- JYF – WisdomTree Dreyfus Japanese Yen ETF
- FXY – CurrencyShares Japanese Yen Trust
Chinese Yuan ETF There are Chinese Yuan exchange traded funds that aim to achieve total returns reflective of both money market rates in China available to foreign investors and changes in the price of the China currency relative to the US dollar.
What are Inverse Currency ETFs?
These are funds that aim to track a currency in reverse. For example if the US dollar went down by 2% in a week, an inverse US Dollar ETF would aim to go up 2% and vice versa.
A few examples of Inverse Currency ETFs include:
- YCS – ProShares UltraShort Yen ETF
- EUO – ProShares UltraShort Euro ETF
- DRR – Market Vectors Double Short Euro ETN
- UDN – PowerShares US Dollar Bearish ETF
Should I trade a currency ETF?
If you are looking to speculate or hedge currencies, ETFs are certain one option. There are both long and short currency ETFs, so you can make money whichever way the market moves.
For the investor who is new to trading currencies and doesn’t want the hassle of learning how forex brokers work, a currency ETF is likely to be the best option.
For an experienced currency trader, buying and selling currencies through a forex broker is likely to be the best option. Currency pairs can also be traded via the futures market as well.
Are currency ETFs risky?
This is a very easy to answer question. The short answer is a big “YES”. Currency trading must always be considered to be high risk. The currency market is often very difficult to predict even for the seasoned professional traders.
As with any type of financial trading, a good strategy and risk management is absolutely critical to being successful in the long term.
Where can I buy Currency ETFs?
Currency Exchange traded funds can be bought and sold just like a regular stock through a stock brokerage firm. There are many stock brokers to choose from, but you will definitely want to make sure that you are getting a good deal for your hard earned money.
If you need some help finding a good stock broker, feel free to take a look at my discount stock brokers page, here I compare many of the major brokers, so finding the right one for you is made much easier.