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You may have heard about currency trading, but chances are you haven’t done it.
That’s because currency trading is tough for the non-professional investor, since it requires a sophisticated understanding of subtle fluctuations between world currencies.
In 2005, however, one investment firm made it a little easier to trade currencies by launching the first currency exchange-traded fund.
An exchange-traded fund, ETF for short, is an investment vehicle. Like a mutual fund, it holds assets, such as stocks or bonds. But unlike a mutual fund, it trades on an exchange, like a stock.
A currency ETF—and there are many today—is simply an ETF that invests in a currency, such as the U.S. dollar, the euro, the Japanese yen and even the Swedish krona.
Why consider a currency ETF? In part because it can be used to hedge against the falling U.S. dollar—which many investors consider an increasing problem.
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