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My grandparents in Canada are contemplating shorting the Euro by buying ETFs, without converting any currency, or selling anything short. They know of two methods:

  1. Buying puts on a normal long ETF like CurrencyShares Euro Trust (NYSE: FXE).

  2. Buying leveraged ETFs like ProShares Ultra Euro (NYSE: ULE), ProShares UltraShort Euro ETF (NYSE: EUO), and Market Vectors Double Short Euro ETN (NYSE: DDR)­

Can someone please contrast these two methods? Which is riskier? They know that options can expire worthless.

  • Worth adding Forex is one of the largest, most liquid and well studied markets on earth. If your grandparents are just doing this because they have a hunch about the direction euros will move they should be heavily discouraged from making this trade. The odds they have any kind of edge vs the market here is basically zero, and the fees to make this trade make it quickly negative in expected value. – Philip May 18 at 11:26
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  1. About ULE:

    ProShares Ultra Euro seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the price of the euro versus the U.S. dollar.

  2. About EUO:

    ProShares UltraShort Euro seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the daily performance of the price of the euro versus the U.S. dollar.

  3. DDR seems to have ceased trading in April 2020.

    • Note that these were unsecured debt securities issued by Morgan Stanley. When you buy an ETN issued by Morgan Stanley, you must be confident about the credit-worthiness of Morgan Stanley. If Morgan Stanley goes bust, you might lose your investment regardless of what actually happens to the actual USD/EUR exchange rate.

As you can see, both ULE and EUO only claim to track the movement of the Euro over a period of one day. They are not designed to be held for more than one day, and you may incur losses for doing so.

If your grandparents want to hold for a period greater than one day, they could:

  1. Find a reputable forex broker that allows shorting the USD/EUR pair, or

  2. Buy puts on a normal long ETF that track USD/EUR movements, or

  3. Buy puts on USD/EUR futures, or

  4. Enter into a USD/EUR futures contract.

Just make sure you know what you are getting into when playing with shorts and/or derivatives.

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  • Thanks. I don't think you answered about FXE? – user10763 May 19 at 1:41
  • @Accounting I answered about FXE in (2). You may want to read its prospectus to know exactly how the ETF is structured. It appears to be rebalanced every quarter. – Flux May 19 at 11:25
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Neither.

If you are betting the EUR USD pair, the most transparent pricing is the FX Options at

Philadelphia Stock Exchange (10,000 EUR per contract) https://www.nasdaqtrader.com/Micro.aspx?id=phlxwcoproductspecs#eu

Chicago Mercantile Exchange (125,000 EUR per contract) https://www.cmegroup.com/trading/fx/g10/euro-fx_contractSpecs_options.html?optionProductId=8116#optionProductId=8116

Neither addresses your base currency of Canadian Dollars.

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  • Why not even FXE? – user10763 May 19 at 2:14

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