Euro ETF

By: EconomyWatch   Date: 30 July 2009

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 A Euro ETF is an exchange traded fund that invests either directly in the Euro currency or indirectly by holding financial instruments that are Euro denominated. Such Euro ETFs are generally currency trusts or grantor trusts. By investing in a Euro ETF, an investor gets a fixed amount of claim to Euros through his stake-holding.  

Why Euro ETFs?  

The Euro is one of the most liquid currencies in the world. Investing in a Euro ETF is considered to be a safe option for traders who do not wish to enter the highly volatile forex market, yet desire to reap the profits that the currency yields. With Euro ETFs, one can steer clear of futures contracts and trading in the fast paced forex market. A trader simply invests in the Euro ETF and waits for its value to rise or fall against the US dollar.

 

How Do Euro ETFs Work?  

Euro ETFs function without any dedicated index. They simply follow the exchange rate between the euro and the dollar. Some of these ETFs are not liable for the capital gains tax, as euros are held by the shareholders.

 

Advantages of Euro ETFs  

Euro ETFs are based on the rise and fall of the US dollar against the euro. Euro ETFs let you invest in two of the most wanted currencies of the world. The advantages are:

  • Exposure to the Euro: Investing in the euro exposes you to the movements of this currency at different times, thus acquainting you with knowledge that can be used in the forex market.

  • For USD based investors: Euro ETFs have a low yearly fee of 0.15% as opposed to 0.4% or 0.5% on other currencies.

  • Hedging: If one feels that the dollar will fall sharply against the euro, he can go ‘long’ on such funds and profit from the falling value and vice versa.  

Disadvantages of Euro ETFs 

Euro ETFs do not have many disadvantages besides that in the absence of leverage, a person has to invest a high amount for reasonable profits.

 

Through Euro ETFs, a trader can stay in a profitable situation even when the dollar falls. Thus, forex traders use euro ETFs for risk management.

 


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