Looking for a way to invest in currencies without opening a Forex account? There are ETFs (Exchange Traded Funds) that allow you to invest/trade in almost every market available to include commodities, stock indexes, fixed income, and currencies. Investing in currencies is a way to hedge positions or to add diversification to your portfolio. The easiest way to play currencies is through the US dollar, either shorting or going long.
Investing In/Against The US Dollar
Think the dollar is going to go up in value or inflation will bring down the value of the dollar? Trade the dollar with ETFs.
PowerShares US Dollar Index Bullish (UUP) is a way to get long the US dollar and PowerShares US Dollar Index Bearish (UDN) is a way to get short the US dollar. If you’re looking for a shorter term play on the dollar, these ETFs have an added tax benefit. They trade US Dollar Futures which are taxed at 60% long term gains and 40% short term gains, no matter how long you hold them. If you’re looking for a longer term play on currencies, try CurrencyShares.
Invest In Other Currencies
CurrencyShares, a group of 9 ETFs offered by Rydex Investments, are a great way to play global currencies with the added benefit of monthly income. These ETFs do not have the tax benefit of PowerShares US Dollar Index Bullish (UUP) and PowerShares US Dollar Index Bearish (UDN). The following ETFs have the same taxation as stocks.
Australian Dollar Trust (FXA) – Current interest rate 2.53%.
British Pound Sterling Trust (FXB) – Current interest rate 0.11%.
Canadian Dollar Trust (FXC) – Current interest rate 0%.
Euro Trust (FXE) – Current interest rate 0.99%.
Japanese Yen Trust (FXY) – Current interest rate 0%.
Mexico Peso Trust (FXM) – Current interest rate 7.25%.
Russian Ruble Trust (XRU) – Current interest rate 1.55%.
Swedish Krona Trust (FXS) – Current interest rate 0.38%.
Swiss Franc Trust (FXF) – Current interest rate 0%.
Do not purchase CurrencyShares as an income play but rather as a call on a specific currency with the added benefit monthly dividends. The interest rates change frequently, so check the CurrencyShares site for updated interest rate and product information.
There are many factors that go into a currencies pricing. Example: some currencies get stronger with the price of oil and weaker when oil drops. When investing in a currency, know what has an impact, whether positive or negative, on the currency.
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