| |
|
|
| |
Currency ETFs
|
|
 |
| |
About Currency ETFs |
|
Currency ETFs Overview and forecast
Currency is one of the trickiest, most flexible, and some traders would say, the most irritating, of commodity markets. The Currency ETFs, as you can see from our chart, represent a very mixed bag of performances. Even their structure is quite variable. Some are trusts, some are basic ETF models. Many are Exchange Traded Notes, another variant.
That said, they also have a range of methods of working with currencies. They can trade futures, and buy and sell short or long. The basic motif for most currency traders is hedging, and it's a pretty reliable approach. Currency trading is a calling for either experts or masochists, and investors need to be mentally comfortable with the way these investments operate. Price moves can be skittish, and in many cases aggressive buying and selling can cause some concerns.
Currency ETFs are very big traders. They also have charts which take some mental adjustment, when you see the peaks and troughs over a six month period. A look at the CurrencyShares Australian Dollar Trust (FXA) chart over
the three years of its existence is a good example. FXA This is a very
highly traded currency, fourth largest in the world, and it's also extremely volatile in its movements. In late 2008, its chart actually went vertically downwards by about 10 cents US. (Cynical comments from some Australian
investors that prior experience on a skateboard is a good grounding in working with the AUD may be overstated, but you can see where that idea comes from.)
Short term (6 months)
There are probably more rumors and speculation in currencies than almost any other markets, but these are unusual times for the currency market. The crash has displaced a lot of money, and it's arguable that currencies like the Euro and US dollar are to some extent oversold, even allowing for money supply and stimulus effects.
The short term does have upside potential, and in terms of the US dollar, there are two possible good scenarios, one being the potential for recovery and the other the Safe Haven effect, where the USD appreciates as people get out of less stable currencies.
The threat, however, in terms of Currency ETFs, is that more economic icebergs will hit. The best shot at a good move in this environment is, and always was, a good spread of currencies. The specialists can get hit very hard
by significant currency moves, and having more than one iron in the fire is always a reliable hedge.
Medium term (2 years)
This really isn't the market for crystal balls. Investors need to stay alert, and anything but passive, in any risk assessment. This market doesn't operate on the Rip Van Winkle principle. There's no such thing as passive currency trading. In the medium term, it is possible to position oneself well, but don't fall asleep at the wheel, because things like futures, inflation and hedges are constant
variables.
The common sense approach to the medium term for Currency ETFs has to be spreads across the major currencies. Combine that approach with a good idea of how the relationships between the Euro and USD will translate into values to your investments. You can make money if you don't get trapped with the wrong side of the equations. With spreads, you need hard numbers, too, not ratios, which can be misleading in terms of the overall performance of your spreads. You can adjust holdings easily enough, and in currencies, which can go down and stay down for very long times, it's best not to get stuck in the cellar.
Long term (5 years)
The absolute reality of the currency markets, and by extension the Currency ETFs, is that any concept of Long Term has to be viewed as a fluid concept. Even the idea of Long Term has to be based on some assumptions.
So if we assume that the currency markets will return to something like the pre crash situation, with an undervalued Yuan as a major issue, a flat Yen, and a surging Euro, the obvious sitting duck would be the USD. If we assume more tense times, and a longer than expected interim of fluctuating factors, the USD is the potential winner, for the reasons outlined in the short term scenarios.
This is one of the few cases where hedging is the logical best move, but it's not necessarily a winner. Many Currency ETFs are specialists. They can't avoid the effects of moves. It doesn't necessarily follow that because one currency falls, others will rise, except relatively. The real Long Term approach is to consider how you want to approach the Currency ETFs in the short and medium terms. You need a reliable investment strategy, proven in the shorter terms, to have faith in any extended investment options.
Qualifiers to projections
It's been necessary, because of the nature of the currency market, to be rather blunt about some of the many possible ways to shoot oneself in the feet on a regular basis with currency investments. It's not all bad, though. Currency trading is in fact a wealth creator, supporting a very large global market. The Currency ETFs are a good way to invest in this area, and they do form an obvious part of spreads across investment markets.
It would be utterly baseless, however, to pretend that currency markets behave with any easily predictable form of price moves. Even spot metals prices tend to have more predictable bandwidths and behaviors than currencies. Investors must have a good understanding of the nature of the markets, and have clear concepts of price moves in their Currency ETFs. It's simple enough, provided you keep your eye on the ball, and know what to do.
|
|
|
| |
|
|
|
|
Last Updated on: 2010-01-14 02:03:40 |
| |
|
|
| |
|
Quotes are updated automatically. Quotes are delayed. Etftips.com has not
reviewed, and in no way endorses the validity the data. Etftips.com shall not be
liable for any actions taken in thereon. All information provided "as is" for
informational purposes only, not intended for trading purposes or advice.
Neither Etftips.com nor any of independent providers is liable for any
informational errors, incompleteness, or delays, or for any action taken in
reliance on information contained herein. By accessing the Etftips.com site, you
agree not to redistribute the information found herein. ETF Values can go up as
well as down.
|
| |
| Copyright EtfTips.com ©2009 |
|
|
| |
|
|
