4 ETFs to Trade the Euro

Posted on March 19, 2016 by Anthony Jerdine

4 ETFs To Trade the Euro (FXE, ULE)
By Anthony Jerdine| March 18, 2016

In December 2015, the U.S. dollar reached its highest close since 2003, and the euro its lowest close since 2003. These could be significant highs and lows, and many investors may be entering currency trading hoping to avoid the carnage in stocks, junk bonds and commodities from over the previous few months. Making money in currencies is not an investment layup in any sense, but currency exchange-traded funds (ETF) provide a convenient way to become involved in currency trading without the requirement of a separate forex account. Traders interested in the euro’s next move, for example, have a number of ETFs that allow them to test their hunches.

CurrencyShares Euro ETF
For currency ETFs, managers attempt to hit their benchmark objectives by utilizing currency futures, forward contracts and various derivative products. The granddaddy of long euro currency ETFs is the CurrencyShares Euro ETF (NYSEARCA: FXE). It is sponsored by Guggenheim Specialized Products, LLC and first appeared in December 2005. This unlevered ETF should be the first choice for investors who want to go long the euro. Net assets total $275 million, and liquidity is excellent with an average of 393,000 shares traded daily. Expenses are also low at 0.4%, and bid/ask spreads are tight. Similar to other currency ETFs, FXE trades only during regular stock market hours and is not actively managed. Its objective is to track as closely as possible the performance of the EUR/USD cross rate, and it does a good job in accomplishing this task. The year-to-date (YTD) return of FXE was 3.5% at the close on Feb. 12, 2016. In comparison, the TradeStation forex platform shows the EUR/USD returned 3.7%. The tracking is not perfect but it is probably close enough for most traders.

ProShares Ultra Euro ETF
ProShares offers a long euro ETF, the ProShares Ultra Euro ETF (NYSEARCA: ULE), designed to provide a leveraged return equal to twice the daily return of the dollar versus the euro. It does not offer an unleveraged option. The problem with leveraged products is the effects of compounding over more than a one-day period often produce slippage, and tracking the benchmark becomes more difficult. ULE’s YTD return of 6.8%, while double the return of the EUR/USD currency pair, equates to 7.4%. Another issue is the high expense ratio of almost 1% compared to FXE’s 0.4%. Total assets are $12 million, and average volume is 3,600 shares per day. Liquidity and bid-ask spreads are poor in comparison to FXE.
4 ETFs To Trade the Euro (FXE, ULE) In December 2015, the U.S. dollar reached its highest close since 2003, and the euro its lowest close since 2003. These could be significant highs and lows, and many investors may be entering currency trading hoping to avoid the carnage in stocks, junk bonds and commodities from over the previous few months. Making money in currencies is not an investment layup in any sense, but currency exchange-traded funds (ETF) provide a convenient way to become involved in currency trading without the requirement of a separate forex account. Traders interested in the euro’s next move, for example, have a number of ETFs that allow them to test their hunches.

CurrencyShares Euro ETF
For currency ETFs, managers attempt to hit their benchmark objectives by utilizing currency futures, forward contracts and various derivative products. The granddaddy of long euro currency ETFs is the CurrencyShares Euro ETF (NYSEARCA: FXE). It is sponsored by Guggenheim Specialized Products, LLC and first appeared in December 2005. This unlevered ETF should be the first choice for investors who want to go long the euro. Net assets total $275 million, and liquidity is excellent with an average of 393,000 shares traded daily. Expenses are also low at 0.4%, and bid/ask spreads are tight. Similar to other currency ETFs, FXE trades only during regular stock market hours and is not actively managed. Its objective is to track as closely as possible the performance of the EUR/USD cross rate, and it does a good job in accomplishing this task. The year-to-date (YTD) return of FXE was 3.5% at the close on Feb. 12, 2016. In comparison, the TradeStation forex platform shows the EUR/USD returned 3.7%. The tracking is not perfect but it is probably close enough for most traders.

ProShares Ultra Euro ETF
ProShares offers a long euro ETF, the ProShares Ultra Euro ETF (NYSEARCA: ULE), designed to provide a leveraged return equal to twice the daily return of the dollar versus the euro. It does not offer an unleveraged option. The problem with leveraged products is the effects of compounding over more than a one-day period often produce slippage, and tracking the benchmark becomes more difficult. ULE’s YTD return of 6.8%, while double the return of the EUR/USD currency pair, equates to 7.4%. Another issue is the high expense ratio of almost 1% compared to FXE’s 0.4%. Total assets are $12 million, and average volume is 3,600 shares per day. Liquidity and bid-ask spreads are poor in comparison to FXE.

ProShares Short Euro ETF
To go short the euro, investors can consider the ProShares Short Euro ETF (NYSEARCA: EUFX). This ETF is unlevered and aims for daily investment results that correspond to opposite the performance of the EUR/USD cross. EUFX began trading in 2012, and it has not been a roaring success. Expenses are high at nearly 1%, and assets total $17 million. Benchmark tracking is good, however, showing a return of -3.5% at the close on Feb. 12, 2016. The reason for the lack of activity in EUFX is traders have flocked to the leveraged version of this ETF. A consideration for investors who resist leveraged ETFs is to short-sell FXE if the shares can be borrowed from the broker. This is an option for more sophisticated people familiar with the potential downside of short positions.

ProShares UltraShort Euro ETF
The ProShares UltraShort Euro ETF (NYSEARCA: EUO) is by far the most frequently used ETF to short the euro. It is leveraged and attempts to double the opposite return of the EUR/USD cross rate. The expense ratio of almost 1% is high, but that comes with the leveraged ETF territory. Total assets clock in at $420 million with average daily volume of over 400,000 shares. In terms of hitting its benchmark, it has performed admirably thus far in 2016. The opposite return is -7.1% compared to the 7.4% of the EUR/USD cross rate. In fact, it has done a better job than the ProShares Ultra Euro ETF, slipping only 300 basis points from the benchmark versus a drop of 600 basis points for ULE. This difference may be attributable only to random noise in the short term, but ProShares measured the correlation to the benchmark as -0.99 during the fourth quarter of 2015, which is a very high inverse correlation.
There are several ETF choices for investors who have the inclination to trade the euro and want to avoid the complications of a separate forex account.

Successful Traders

Posted on March 17, 2016 by Anthony Jerdine

Characteristics Of Successful Traders
By Anthony Jerdine| March 17, 2016

Well-honed trading skills and a clearly-defined edge comprise key elements in the quest for long-term success in financial speculation. But all the books, websites, and mentors in the world can’t overcome a bad attitude and mental roadblocks that undermine trading performance from initial preparation to the final exit. Perhaps that’s why successful traders share common psychological characteristics.

For example, successful traders display a healthy dose of optimism, even when it isn’t supported by the latest profit and loss statement, because they know that drawdowns are temporary, and that they have the skills needed to build back profits. They also understand that trading is a zero-sum game that divides up winners and losers, and visualize themselves on the winning side at all times, regardless of short-term results.

Let’s look at three other mental attributes that guide the decision making of successful traders. These positive characteristics comprise an incomplete list but offer an excellent jumping-off point for other market participants to consider how closely they match these winning traits, or how far they are from fulfilling their market and non-market goals.

Self-Esteem and Self-Worth

The modern education system focuses great effort on self-esteem and self-worth in the student population, but the transition into adulthood may undermine this effort, leading to negativity, cynicism, and self-doubt. Each of these attributes has an impact on profitability because the emotional nature of buying, selling, and assuming risk requires visualization of the most positive outcomes, which is undermined when we believe we aren’t good enough to be financially successful.

Modern society is infused with negative attitudes about wealth that traders must overcome in order to book consistent profits. It’s become a sideshow of haves and have-nots, with haves on stage in reality shows like Keeping Up With the Kardashians, while the media publishes endless stories about income inequality. Meanwhile, the middle class at times carries around a profound sense of scarcity, always feeling there isn’t enough money or resources to obtain the things in life that they deem important.

Successful traders address issues of scarcity and doubt early in their careers, understanding that it will be impossible to turn consistent profits if they don’t feel worthy of financial gain. Over time, they understand that self-confidence comes in small steps, by making the right decisions, one at a time. In turn, they ruthlessly examine each trading day in retrospect, confirming that confidence and wealth-building guided each action. Over time, this self-reflection pays huge dividends

Sense of Internal Power

We all have to work through the duality of power and powerlessness in our professional and personal lives. Many in modern society may feel like victims, with wrongdoing always coming from external sources that can’t be controlled, while our spouses and family members may reinforce this powerlessness by offering negative conditions, demands, and emotions that increase our sense of discomfort.

Successful traders address this challenge with great enthusiasm, knowing that building their personal power offers a direct path to prosperity. They spend a good deal of time reflecting on the sources of conflict in their lives, recognizing the ways they can defuse stressful situations. Throughout this process, they refuse to wave the victim’s flag, instead taking personal responsibility when things go wrong.

Balance Away from the Market

Your experience in the financial markets reflects a perfect image of your life away from the financial markets. For example, destructive habits like smoking, overeating, and drug use directly correlate with poor trading performance. Struggle with spouses, children, and family add to the burden, as do a lack of exercise, uncontrolled anger, and obsession with political outcomes.

Successful traders spend as much time working through personal issues as they do in market preparation. They take care of their bodies with healthy diets, while understanding that recreation is a vital activity in keeping trading performance at peak level. They also seek the guidance of clergy, mental health professionals, or gurus when their own efforts to achieve balance come up short.

Successful traders share positive psychological characteristics that enhance their personal power and the ability to create positive outcomes, including a commitment to physical and mental health and stress management.

Characteristics Of Successful Traders