ETFs have opened up the doors to previously hard-to-reach reach corners of the market, including foreign equities, commodities and alternative asset classes. Currency ETFs in particular have seen growing interest among investors and traders alike as they greatly simplify the challenges that are otherwise associated with entering the forex market .

How Currency ETFs Work

Currency ETFs attempt to replicate the movements of a currency on the foreign exchange market (forex) against the U.S. dollar (USD), or a basket of currencies. This is done by using cash deposits, such as holding euros or Swiss cash for example, or through the use of futures and swaps contracts to achieve a desired exposure .

If you believe the euro, other active global currency or a basket of currencies will rise or fall relative to the USD, currency ETFs provide a way to capitalize on that. When you purchase a currency ETF you’re betting ...