People who want to invest in the European Union’s euro have several options available. In most cases, investors will never actually hold the currency, but either buy exchange traded funds, bonds or speculate on the value of the currency through a foreign exchange market. Deciding which is best for your investing strategy will require market research and portfolio risk evaluation. When you invest in the euro, you are betting that there will be an overall improvement in the economies that use the currency.
Decide on a foreign currency investment strategy. The foreign exchange market is the most common way to invest in foreign currency, but it’s also risky and will require your close attention. Investors who want to get into the currency market but don’t want to assume the risks of a foreign exchange market account can purchase euro exchange traded funds, which track the currency and trade like stocks. Another way to invest in the euro is to buy bonds issued by European Union governments, including Germany, Italy, France and Belgium. Bonds are safer, but the additional fees for currency conversions can make them less attractive than U.S. Treasury bonds.
Pick an online or traditional brokerage account that fits your investment strategy. Most standard brokerage services, both online or traditional, can facilitate purchases of euro-based exchange traded funds or bonds for investors. However, many brokerages that trade stocks, options, bonds and other common investments don’t offer trading in foreign exchange markets. Investors who want to trade foreign currency may have to establish a separate account with an online service specializing in foreign exchange market trading.
Review the services and requirements that any online account for foreign exchange markets offers before selecting one. Because investors open and close trades involving the market in relative short time periods, most are done through online services because of the speed they offer. Day trading is common in foreign exchange markets. Most services don’t have commission charges because the brokers make profits on the difference between the currency’s bid and ask prices. Investors do best from foreign exchange market accounts that offer the lowest spreads. However, other factors should be considered. Most foreign exchange market accounts are traded on margin, where the brokerage lends money to the account holder. These margins can sometimes leverage an investor’s account by as much as a $100-to-$1 ratio. Most accounts will have a minimum account balance, which the Wall Street Journal reports, can range from $500 to $10,000 or more.
Research market conditions before making any investments into the euro. Currency trading is known for its volatility and can be affected by issues like government debt, interest rates, trading policies and other financial, market or political issues. Currency is traded against each other in pairs, so an investment in the euro through a foreign exchange market account is based on speculation the euro’s value will rise against another foreign currency, such as the U.S. dollar, Japanese yen or Canadian dollar. A nation’s currency is valued against the country’s overall economic output. Issues like unemployment, trade deficits and manufacturing output can send currencies up or down. Exchange traded funds track the price of a currency but trade like stocks, which gives investors a better long-term option for investing into the euro.
- Wall Street Journal: Is Currency Trading Worth the Risk?
- Informed Investments: Foreign Currency Investment - Euro Or Dollar?
- Investment U: The Fall of the Eurozone - How to Short the Euro With ETFs
- Reuters: Dollar hits 3-week low versus yen but rises versus euro
- Investing in Bonds: European Government Bonds
- Easy Forex: Pips and Spreads
- Board of Governors of the Federal Reserve System. "Foreign Exchange Rates - H.10." Accessed April 30, 2020.
- BIS. “Foreign Exchange Turnover in April 2019.” Accessed April 30, 2020.
- FOREX.com. “Forex Trading.” Accessed April 30, 2020.
- Macrotrends. "Dollar Yuan Exchange Rate - 35 Year Historical Chart." Accessed April 30, 2020.
- European Central Bank. "How Quantitative Easing Works." Accessed April 30, 2020.
- Macrotrends. "Euro Dollar Exchange Rate (EUR USD) - Historical Chart." Accessed April 30, 2020.
- European Union. "Which Countries Use the Euro." Accessed April 30, 2020.
Terry Lane has been a journalist and writer since 1997. He has both covered, and worked for, members of Congress and has helped legislators and executives publish op-eds in the “Wall Street Journal,” “National Journal” and “Politico." He earned a Bachelor of Science in journalism from the University of Florida.