The foreign exchange market, or forex, is the largest, most liquid financial market in the world. Investors can easily track currency moves through exchange traded funds (ETFs).
Investors who want exposure to a forex exchange market without dealing with futures or directly with a forex account may be better suited trading in currency ETFs, which cover some of the most popularly traded international currencies.
Currency ETFs try to reflect the performance of a single currency or a basket of currencies. ETF providers structure their currency funds to try to reflect the movements of a currency in a foreign exchange market by holding foreign currencies directly, foreign currency denominated short-term debt instrument, derivatives or swaps.
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For instance, the Guggenheim CurrencyShares suite of currency ETFs hold the foreign currencies directly through foreign currency-denominated deposit accounts – the accounts also accrue interest, which is paid out to shareholders after accounting for fund operating costs. The WisdomTree and PowerShares currency ETFs hold futures contracts or swaps to achieve their target objectives.
Investing in the forex market helps investors diversify and hedge with currencies, which may reduce portfolio risk while maintaining an upside potential. For instance, individuals holding assets denominated in a foreign currency are exposed to currency risks – if the foreign currency weakens compared to the U.S. dollar, the investor’s foreign investments will also depreciate in value once converted back to U.S. dollars.
Unlike the stock market, currencies usually oscillate between a support and resistance level over the long-term. Inflation and monetary policy, for example, prevent currencies from increasing in value indefinitely. As one currency gains value, another has to depreciate to balance the effect out.
CurrencyShares Euro Currency Trust (NYSEArca: FXE )
CurrencyShares Canadian Dollar Trust (FXC)
CurrencyShares Australian Dollar Trust (FXA)
CurrencyShares Swiss Franc Trust (FXF)
CurrencyShares Japanese Yen Trust (FXY)
CurrencyShares British Pound Sterling Trust (FXB)
CurrencyShares Swedish Krona ETF (FXS)
CurrencyShares Chinese Renminbi Trust (FXCH)
CurrencyShares Singapore Dollar Trust (FXSG)
PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
PowerShares DB G10 Currency Harvest Fund (DBV)
WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU)
WisdomTree Dreyfus Chinese Yuan Fund (CYB)
WisdomTree Emerging Currency Strategy Fund (CEW)
WisdomTree Brazilian Real ETF (BZF)
WisdomTree Indian Rupee Strategy Fund (ICN)
WisdomTree Dreyfus Commodity Currency Fund (CCX)
iPath EUR/USD Exchange Rate ETN (ERO)
iPath GEMS Index ETN (JEM)
iPath Optimized Currency Carry ETN (ICI)
iPath JPY/USD Exchange Rate ETN (JYN)
iPath GEMS Asia 8 ETN (AYT)
iPath Asian & Gulf Currency Revaluation ETN (PGD)
iPath GBP/USD Exchange Rate ETN (GBB)
VanEck Vectors-Rupee/USD ETN (INR)
VanEck Vectors Chinese Renminbi ETN (CNY)
ProShares UltraShort Euro (EUO)
ProShares UltraShort Yen (YCS)
PowerShares DB US Dollar Index Bearish Fund (UDN)
ProShares UltraShort Australian Dollar (CROC)
ProShares Short Euro (EUFX)
ProShares Ultra Euro (ULE)
ProShares Ultra Yen (YCL)
For more news and strategy on the Currency ETF market, visit our Currency category .