Eight Ways to Trade Foreign Currency

I learned about CurrencyShares in a recent Forbes article. I might have stumbled upon these investments eventually but Forbes was the first place I saw a reference to them. CurrencyShares are exchange traded funds set up as trusts to track various currencies. So, if you think a currency is going to go up in relation to the dollar, you don't have to buy a foreign exchange contract or go to a bank or foreign exchange office and buy large amounts of currency. Instead, you can buy shares in one of the CurrencyShares which trade on the New York Stock Exchange, just like a stock.

If you think the currency is going the other direction in relation to the dollar, you have a couple options [no pun intended]; you can either short the CurrencyShares or you can buy puts on the trust shares.

Here are the CurrencyShares that are currently available:

• CurrencyShares Australian Dollar Trust (FXA), which has a goal of tracking the price of the Australian Dollar, has had a 12.89% year to date return and pays a yield of 5.4%.
• CurrencyShares British Pound Sterling Trust (FXB), which has an objective of tracking the price of the British pound, had a 2.46% year to date return and a 4.8% yield.
• CurrencyShares Canadian Dollar Trust (FXC) had a year to date return of negative 1.35% with a 3.3% yield.
• CurrencyShares Euro Trust (FXE), with an objective of tracking the Euro, which recently celebrated its ten year anniversary, has had a return year to date of 9.65% and a 3.2% yield.
• CurrencyShares Japanese Yen Trust (FXY), which attempts to track the Japanese Yen, has had a year to date return of 4.80%.
• CurrencyShares Mexican Peso Trust (FXM) has had a 9.43% year to date return and a yield of 5.8%.
• CurrencyShares Swedish Krona Trust (FXS) has had a 9.39% year to date return and a 2.9% yield.
• CurrencyShares Swiss Franc Trust (FXF) has had a 11.62% year to date return and pays a yield of 1.26%.

It's too bad that there is no simple way to trade the Zimbabwe currency.

Disclosure: The author owns puts on FXE.