The availability of foreign-currency-tracking exchange-traded funds -- ETFs -- now make it unnecessary to open a commodity futures or currency broker account if you want to make a bet on currency exchange rates. The euro to U.S. dollar exchange rate -- EUR/USD -- is the most widely followed currency value. With currency trading, the returns are always based on relative value: If one is going up, the other is going down at the same rate.
Use your stock brokerage account to buy euro-related ETF shares. All ETFs trade on the stock exchanges like shares of individual stocks. Investing in or trading an ETF uses the same process as buying and selling shares of stock.Step 2
Review the current share prices, stock symbols and relative values of the ETFs that track the euro/dollar value. Three funds -- the CurrencyShares Euro Trust ETF, symbol FXE; the iPath EUR/USD Exchange Rate ETN, symbol ERO; and the ProShares Ultra Euro ETF, symbol ULE -- go up in value if the euro rises against the dollar. ETFs that go up in value if the dollar is stronger than the euro are the ProShares UltraShort Euro, symbol EUO, and the Market Vectors Double Short Euro ETN, symbol DRR. (An exchange traded note -- ETN -- functions in the same manner as an ETF. The structure of ETFs and ETNs is different, but they can be viewed as the same type of investment by individual investors.)Step 3
Determine which direction you think the dollar vs. euro will move and buy shares of one of the ETF/ETN funds from the appropriate side of the list. ETF trades are made by indicating how many shares you want to buy using the stock trade screen of your online brokerage account.
- The funds with "ultra" or "double" in their name will produce daily value changes that are twice the change in the currency exchange rate.
- Currency rates are a zero-sum game. One side is going up at the same rate the other side is going down.
- Many of the currency ETF/ETNs are small funds with limited trading volume. Make sure a fund is accurately tracking the currency exchange rate before you buy any shares.
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