How to Buy Foreign Currency Investments

The universe of ETFs give you several ways to invest or speculate on currency values.

The universe of ETFs give you several ways to invest or speculate on currency values.

Investing in foreign currencies allows you to make money if the dollar drops in value against one or more of the types of money used in those foreign lands. Dedicated forex broker currency trading uses high leverage, which could result in quick large losses to your account. To make longer term investments in currency values, it may be best to stick with products you can buy through your stock brokerage account.

Single Currency ETFs

A single currency exchange-traded fund lets you to make a directly correlated investment in the value of the currency of your choice against the U.S. dollar. The share prices of these ETFs will increase as the foreign currency gets stronger against the buck. According to the ETF Database and Fidelity websites, currency ETFs exist that allow you to invest in 12 different types of money. Inverse ETFs that profit if the dollar gets stronger offer reverse profit potential for the euro and Japanese yen.

Currency Basket ETFs

Another type of currency-focused ETF gives you exposure to a basket, or a number of currencies with a single fund. These funds allow you to invest in a currency theme, such as emerging market currencies or a region such as Asia and the Middle East. Other currency basket ETFs let you play the carry trade game, buying positions in the currencies from countries where interest rates are high and selling the money from low rate countries. Carry trade currency investing has been a popular and usually profitable strategy practiced by the big money financial institutional traders.

Foreign Bond Funds

A fund that owns bonds from outside the U.S. will benefit from higher currency values in the countries where the bonds were issued. A foreign bond mutual fund or ETF allows you to earn bond interest, and the fund's share price can also benefit from positive currency value changes. If you want to invest in a bond fund with a currency value kicker, make sure that the fund does not use any currency hedging strategies to negate currency fluctuations. You also want to check the fund's portfolio data to see where the bonds are from and in what currency the securities are denominated.

Foreign Stocks

Investing in stock shares of foreign companies also comes with the opportunity for a foreign currency value kicker as well as owning the stocks for their growth and dividend potential. Hundreds of foreign stocks trade on the U.S. stock exchanges as American Depositary Receipts. The ADR shares you buy are priced in dollars, and that share price automatically accounts for changes in the company's home country currency. As another path to invest internationally, a handful of discount brokers allow you to convert cash from your brokerage account to a foreign currency and then buy shares on the stock exchanges in foreign countries. With these accounts, you can leave a portion of your account balance in the foreign currency, either as cash or invested.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

Photo Credits

  • Visage/Stockbyte/Getty Images