Currency Exchange Traded Funds, Currency or Forex ETFs Explained

Tuesday, August 5, 2008

Currency Exchange Traded Funds

Currency Exchange Traded Funds or Currency ETFs are one of the latest investment/trading instruments available to profit from the price changes of forex market. Currency ETF are a variation of traditional ETFs, in which the ETF firm buys and holds foreign currencies in a fund and the shares are made available in market for investors/traders.

When the foreign currency, which constitute the fund, rises against US dollar (USD) the whole value of the fund also rises correspondingly, so should the ETF share price. If the foreign currency falls against USD, the value of ETF falls, and so should be its share price.
There are many types of currency ETFs.

Currency ETFs which track single currencies like CurrencyShares Swiss Franc Trust (FXF), CurrencyShares Euro Trust (FXE), CurrencyShares Japanese Yen Trust (FXY), British Pound Trust (FXB), Canadian Dollar Trust (FXC) and Australian Dollar Trust (FXB). Each share of a currency ETF represents a fixed amount of foreign currency. Eg: share of FXE = 100 Euro.
Currency ETFs which track a range of different currencies. Examples include PowerShares DB U.S. Dollar Bullish (UUP) and PowerShares DB U.S. Dollar Bearish (UDN) which track EUR, JPY, GBP, CAD, CHF and SEK against USD.
Currency ETFs which track some currency indexes. Like DB G10 Currency Harvest Fund (DBV) which tracks Deutsche Bank G10 Currency Future Harvest Index.