ETF Talk

Leveraged Inverse Fund Profits If the Dollar Rises and the Euro Falls

Investors interested in protecting their assets during volatile market conditions may want to look at currency-based exchange-traded funds (ETFs), such as ProShares UltraShort Euro (EUO).

EUO is more than just a short investment that bets against the rise of the euro. It is correlated with twice the inverse of the performance of the euro against the dollar, so if the euro/dollar balance shifts in favor of the dollar and the euro falls in value, the fund is intended to produce positive returns equal to twice the magnitude of the change.

For investors confident the euro will go down, this investment could be lucrative. In general, leveraged ETFs like this one are intended as short-term trades. Since the euro vs. dollar is a zero-sum game, any thought of holding this fund for the long haul might be unwise, especially since it is a leveraged fund that is designed to move twice as much as with an unleveraged trade.

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