Roger Nusbaum on the First Currency ETF, the Rydex Euro Currency Trust (FXE)

Roger Nusbaum submits: The Rydex currency ETF is finally out under symbol FXE. It tracks the euro.

One of the first things I think I ever wrote on this site was that there would be more innovation in the world of investment products and the successful listing of FXE leaves me all the more encouraged.

I think it important to realize what FXE can and cannot do for a retail investor's portfolio. I don't think this will lend itself to very quick trading. How often does the dollar move $0.02 in a day. FX traders are usually looking for increments so small that they quantify in pips. Pips are a little further to the right of the decimal point than the "2" from a couple of sentences ago.

In the last year the dollar has gone from $1.35 (ish) to $1.19 vs the euro. That is a big move, around 12%. That is not a huge number for a stock. Its not even a big number for a stock. 12% is a hair above average. I don't think FXE can offer equity like returns. Currencies are really a different type of asset class.

FXE, and any subsequent currency ETFs, will likely be bought by a lot of equity investors with not much currency experience. Think about it logically, a developed country (or economic union) will not let its currency move by 20% in a year without putting up a huge fight.

This is not to say the FXE, or anything that might come next, should be avoided but it is to say it should be thought of as a different type of asset class.

Related:

• ETFs mentioned in this article (clicking on a link pulls up articles for the ETF in question): FXE.

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