Bored With Stocks? More Investors Bet on Currencies

For most investors, however, the best way to trade currencies is through exchange-traded funds, or ETFs, which are essentially mutual funds that are bought and sold like stocks. ETFs offer exposure to the movement of currency markets without the risk of futures trading. There are plenty to choose from as well.

Some mimic the movement of individual currencies, like the Rydex Currency Shares funds for the Australian dollar, yen, the Swedish krona, Mexican peso and several others.

PowerShares even has individual funds for those bullish or bearish on the US dollar while also offering an omnibus fund it calls the Currency Harvest Fund, which follows a basket of foreign denominations.

"Investors can augment their returns by using currency ETFs," says Tom Sowanick, chief investment officer at Clearbrook Financial, of Princeton, NJ. "Investors can hedge some of their inflation risks by participating with currencies, and they can also participate in what is potentially a much longer-term revaluation of the dollar as the sole reserve currency."

A Basket of Currency ETFs

FXA

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FXE

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FXM

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FXS

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UDN

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UUP

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With the Bush administration favoring a weak dollar and none of the prospective presidential candidates devoting much campaign time to backing the US currency, Sowanick sees the greenback continuing its weakness.

The Federal Reserve has been on an aggressive rate-cutting run since September 2007 in an effort to increase liquidity and stave off a recession. But the moves result in a weakened dollar as lower interest returns make it a less attractive investment.

The dollar has hit staggering lows against the euro, which at one point fetched more than $1.60 against the US currency. The greenback also has struggled versus the yen; the relationship between the US and Japanese currency has become a hotspot for stock market watchers, with a drop in the yen often signaling a gain in equities.

"The lame-duck administration has shown no interest in protecting the dollar and will likely continue to show no interest through November," Sowanick says. "That doesn't mean the dollar goes straight down, but there's not a whole lot of reason to expect it to appreciate."

He likes some of the major currencies but also believes the Brazilian real, Indian rupee, Indonesian rupiah and Malaysian ringgit will be solid investments as those nations continue to grow.

That presents an opportunity for those looking to make currency plays.

One of the conveniences of currency trading is the low cash requirements. Even futures trading requires less capital than, say, commodities. In Philadelphia, an investor can get involved in currency futures trading for as little as $200.

In fact, Crooks recommends starting small to get a feel on how the market moves.

"There's nothing like having a small position to concentrate the mind on the price actions in currencies," he says. "Currency markets tend to be a lot more sentiment-driven...You slowly start to understand that, and you start to understand a macro view. I think the average person can do it."