Hi, what's the best way to invest in foreign currencies online?  In
other words, I think the Canadian dollar is going to go up but I don't
want to buy a bunch of Canadian dollars, I want to invest in a vehicle
that moves the same way Canadian dollars move.  Maybe there's a
Canadian dollars index or something like that I can invest in through
E*Trade--I just don't know where to look.  If there is such a vehicle
for Canadian dollars, are there similar things for Yen, Pesos, etc?

I know a little about the idea of the foreign exchange and investing
through that, but I'd rather not open another brokerage account and I
really prefer to do everything online (I don't want to talk to
brokers).  If I have to go through another brokerage, any
recommendations on where to go or what to do would be nice.

Thanks!

It doesn't make sense to "invest in a foreign currency" -- you've
always got some instrument in the currency. I suspect that you're
interested in one or the other of two fairly different things:

  1) being exposed to foreign currencies / hedged against USD drops as
part of a carefully considered portfolio management strategy; or

  2) trading on short or medium term currency fluctuations.

For 1), it's sufficient to buy foreign stocks / bonds / mutual funds
(being careful to avoid the ones which hedge away the exposure you
want), or US companies with significant exposure to the currencies
you're interested in. Be sure to consider the impact on the rest of
your portfolio.

For 2), the key question is controlling your round trip costs. It's
very hard to get a decent rate on actual exchanges of currency, even
for very popular ones like CDN <> USD, unless you are working with
millions of dollars. You'll want to look into futures trading and
similar things. Google's directory on Forex Futures Brokers is as good
a place as any to start:

http://directory.google.com/Top/Business/Investing/Commodities,_Futures/Forex/Brokerages/

Good luck!

> It doesn't make sense to "invest in a foreign currency" 

I think he means to say it is the relationship between two currencies
and not the currency itself that moves. The dollar can fall against
the yen, but the dollar may be rising against South African rand.

I don't know of a tradable index you'd be able to take advantage of
through etrade. Hell, they're just now getting around to options on
stock index ETFs much less coming up with something to hedge currency
risk. Equities and foreign currency naturally don't mix. There are
indexes of foreign stocks but they are not necessarily be highly
correlated with that country's currency.

You're going to have to use futures or go straight into the forex
market. Both futures contracts and forex brokers generally stipulate
$100,000 trade lots. However, I've seen forex "mini accounts" out
there. A futures equivalent also exists, the MidAmerican Exchange but
they were bought out by a larger exchange and from what I can tell the
contracts have very little volume.

Therefore, for a small account the best route may be with a forex
broker offering sub-lot trade size.  Here is a popular one offering
"mini accounts" :

FX Capital Markets
http://www.fxcm.com/mini/index.html

These are other popular forex brokers, though I'm not sure if they
offer mini accounts.

Gain Capital
http://www.gaincapital.com

MG Financial Forex
http://www.mgforex.com


Should you decide fuures is the right vehicle, these are popular
brokers. Note that without about $20,000 a trader will be
overleveraged with regular sized futures contracts.

Lind-Waldock
http://www.lind-waldock

Man Financial
http://www.manfutures.com