Currency exchange-traded funds (ETFs) offer a world of trading opportunities beyond the U.S. dollar. While the greenback remains a dominant global currency, it’s essential not to overlook other major players in the forex market. Diversifying your portfolio with currency ETFs can provide exposure to different economies and enhance your potential for profit. Let’s explore some of the other popular currency ETFs available:
The euro is the second most traded currency in the world, and it is often seen as a counterpart to the U.S. dollar. Investors interested in the euro’s performance have two primary options: bullish and bearish euro ETFs.
- Bullish Euro ETF – Invesco CurrencyShares Euro Trust (FXE): This ETF tracks the performance of the euro against the U.S. dollar. When the euro rises, FXE’s value increases, and vice versa. It can be an excellent choice for investors looking to hedge against the U.S. dollar or those optimistic about the euro’s prospects.
- Bearish Euro ETF – ProShares UltraShort Euro (EUO): EUO is designed to move inversely to the euro’s performance. As a leveraged and aggressive short vehicle, it’s more suitable for speculative traders than long-term investors. If you expect the euro to decline against the U.S. dollar, EUO can be an option to profit from this belief.
The Japanese yen is another significant player in the global forex market. Investors interested in trading the yen can consider the following ETF:
- Invesco CurrencyShares Japanese Yen Trust (FXY): FXY provides exposure to the Japanese yen relative to the U.S. dollar. It appreciates when the yen strengthens and depreciates when the U.S. dollar gains ground. Like other currency ETFs, FXY can be used for hedging or as a speculative vehicle.
Choosing Currency ETFs: Hedged or Unhedged?
Another factor to consider when selecting currency ETFs is whether to opt for hedged or unhedged ETFs. This decision depends on your risk tolerance and market outlook.
- Unhedged Currency ETFs: Unhedged ETFs commit 100 percent to the asset’s prospects without employing strategies to mitigate risk. For instance, UP and UDN, as mentioned earlier, are examples of unhedged ETFs focused on bullish and bearish bets on the U.S. dollar.
- Hedged Currency ETFs: Hedged ETFs incorporate strategies that aim to offset risk or provide an element of safety. Investors seeking a more cautious approach may explore hedged currency ETFs, which offer exposure to currency movements while managing potential downside risks.
Studying Some Currency ETF Resources
Navigating the world of currency ETFs can be facilitated by utilizing various resources. Some notable platforms include:
- Currency ETF: A dedicated website providing information on currency ETFs.
- ETF Database: A comprehensive database of various ETFs, including currency ETFs.
- ETF Trends: A platform offering insights and trends related to ETFs.
- ETF.com: A website providing comprehensive data, analysis, and news about ETFs.
- ETFguide: A resourceful website offering guides and analyses on ETFs.
- Morningstar ETF Ratings: A renowned rating agency providing objective assessments of ETFs’ performance.
- Seeking Alpha on ETFs & Funds: An online community for investors offering insights into ETFs and funds.
By exploring these resources, investors can gain valuable insights and make more informed decisions when trading currency ETFs. Remember to conduct thorough research and consider your investment goals before diving into the exciting world of forex alternatives.