How to make Money in the Stock Market.This blog looks at how you can make money trading and investing in Forex, Stocks Options and Futures.


Friday, 29 December 2006

And Now...The end is Near....How to use Currency ETFs in your investing and Trading

Well it could be a requiem for ol Blue Eyes, but I am referring to a couple of things, firstly 2006-isn''t it amazing as you get older how a year seems to get shorter and shorter.When I was younger a year seemed to last forever-nowadays a year feels like a long weekend !!

I am also referring to my view regarding the US Dollar, I feel 2007 will be the year where the fundamentals catch up on the dollar and we see a weakening, possibly with the Dollar Index making new lows.

This is of interest to me for two reasons, one -can we make money from this perception and two-being a UK based investor with a large portion of my investments in US $ how do I manage the currency risk, well there are a number of possible ways.Futures, Options, Certificates of Deposit and Multi Currency funds.My Pension fund is set up in such a way that I could utilise Futures and Options-these are highly leveraged and may not be for everyone but there is another option....Currency ETF's..

I have added below some background to these instruments but they trade on the NYSE just like shares so are easy to get in and out of and also are not leveraged like Futures and Options and are also not subject to Time decay like options.I am likely going to utilise some of these early in the New Year but this may serve as a primer and some background for those of you not so familiar with them.

Foreign Currency ETF Funds

ETFs (exchange traded funds) have made it easier for investors to to invest in all kinds things, usually with very low expense ratios. In December of 2005, Rydex launched their first CurrencyShares for Euros, trading under the symbol FXE (the FX stands for foreign exchange). Similar to the gold funds, Euros would be held in a trust at the JP Morgan Chase Bank in London, with each share purchased representing 100 Euros. With a slight twist, the currency would also be held in interest bearing accounts, meaning the funds expense ratio would be paid out of the interest, and any additional interest accrues to the share holders. So why would you want to invest in a Euro ETF? Well, if you think the value of the dollar is going to decline and the value of the Euro is going to increase, you buy some of these shares and they go up in value, and you can later sell them and have more dollars to spend. Pretty simple. Funds like these are a world away from the old school style of investing in foreign exchange futures. They give investors an easy way to diversify beyond stocks and bonds, to take financial positions for opportunities in the currency markets, and they do all this through easy access of a brokerage account. You can learn about the various Rydex funds at The the popularity of the Euro fund, Rydex also launched a number of other foreign currency investment funds:
  • CurrencyShares Australian Dollar Trust (06/2006) - FXA
  • Currency Shares British Pound Sterling Trust (06/2006) - FXB
  • Rydex CurrencyShares Canadian Dollar Trust (06/2006) - FXC
  • CurrencyShares Euro Trust (12/2005) - FXE
  • CurrencyShares Mexican Peso Trust (06/2006) - FXM
  • CurrencyShares Swedish Krona (06/2006) - FXS
  • CurrencyShares Swiss Franc (06/2006) - FXF

Best Wishes and Good Trading