Currency exchange traded funds (ETFs) are a popular and simple way to get exposure to the foreign exchange. As investors discover these and other ETFs, there may inevitably be questions about using them.
Let’s tackle a few that we’ve seen from time to time.
1. Can you short currency ETFs?
Yes, ETFs can be shorted. But don’t forget that there are also ETFs that do the shorting for you, which might make your life easier. Read our special reports on currency ETFs and leveraged/inverse ETFs for more details on how this works.
2. Is it possible to get triple-digit returns using these ETFs?
If it were that easy to get returns that large, wouldn’t every investor be doing things like this? Instead of focusing on hitting hard-to-reach targets with your portfolio, think about taking a more methodical approach that leads to steady performance and downside protection. We use a simple strategy of trend following, which has us in and out of positions based on the long-term trend lines. You can learn the details about how it works here.
3. Are currency ETFs good for day traders?
Currency ETFs work for anyone, and many different types of investors use them. Pensions, institutions, retirees and investors experienced and novice have owned them at various points and used them to good effect.
4. Why would I want to own currency ETFs?
Currency ETFs are a great way to easily play trends in the currency markets, which seem especially lively these days in light of the world’s currency wars. In the United States, a weakened dollar may become weaker in light of the Federal Reserve’s monetary policies, so currency ETFs can be a way to protect your purchasing power. [Play the Currency Wars With ETFs.]
Another reason to consider currency ETFs is that the have the potential to generate yield (though not always). The Australian dollar is one of the world’s highest-yielding currencies, and CurrencyShares Australian Dollar Trust (NYSEArca: FXA) is yielding a nice 3.60% – far better than the average money market.
For more stories about currency ETFs, stop by our category. To find all the currency ETFs available today, visit the ETF Analyzer.