Trading Currency ETFs
Posted in Learn by Lewis Wolfe
Monday, February 23rd, 2009 11:19 AM GMT
ETFs, exchange-traded funds, grew out of the older style, mutual funds or unit trusts.
Since ETFs trade on the market, investors can use the same trading tools as they can with a conventional stock, for example, limit orders, stop-loss orders, margin/leverage, selling short, and no restriction on lot size.
ETFs retain the valuation feature of a unit trust, which can be purchased/redeemed at the end of each day for its net value – but you’re not limited to trading at the close price. An ETF is continually priced through market trading hours and so intra-day trading becomes possible. (Not something that ever went on with unit trusts or mutual funds).
Commodity ETFs invest in commodities, such as the precious metals and commodity futures. Among the first commodity ETFs were gold exchange-traded funds, which have been widely offered in recent years. There’s also currency ETFs…
Currency ETFs
Rydex launched the first ever currency ETF, called the Euro Currency Trust (NYSE: FXE) in 2005.
See the diagram top right for its recent progress – don’t forget, you can go short, so there’s always ticks to be made. Since then, they’ve launched a series of funds tracking all major currencies under their brand CurrencyShares.
Deutsche Bank offers the EONIA Index on the Frankfurt exchange, which tracks the euro – and also the Sterling and US Dollar Money Market ETFs in London – LSE: XGBP and LSE: XUSD respectively.
Currency ETFs will always suit some investors better than others – if you don’t fancy the cut-and-thrust of spot retail forex trading, they can be good option to explore.
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Commodity or currency ETF’s sound like a good idea for some ivestors but don’t often turn out that way
Yep – currency ETF’s avoid them at all costs. Like Grannybonds.
Well they’re not bad, but they’re certainly no substitute for having a go in high risk/return retail forex