You will get a clear breakdown of top funds designed to give you exposure to major world currencies without high fees.
Why You Should Consider Forex ETFs for Long-Term Goals
Foreign exchange (forex) ETFs track the value of a currency or a basket of currencies. For a long-term investor, they serve two primary functions. First, they act as a hedge against a weakening domestic currency. If your home currency’s value falls, the value of your foreign currency holdings rises, protecting your portfolio’s overall purchasing power.
Second, they provide a direct way to invest in the economic strength of another country or region. A long-term position in a currency ETF is a bet on that region’s economic stability and growth.
How We Selected the Top Forex ETFs
Our selection process focuses on criteria vital for long-term success. We did not focus on short-term trading tools. Each fund on this list meets strict standards for cost, liquidity, and strategy alignment for a buy-and-hold investor.
- Low Expense Ratio: Fees compound over time. We prioritized ETFs with the lowest management fees to maximize your returns.
- High Liquidity: High assets under management (AUM) and daily trading volume mean you can buy and sell shares easily without significant price discrepancies.
- Clear Strategy: The fund’s objective is simple to understand. It either tracks a single major currency or a logical basket of currencies.
- Issuer Reputation: The fund is managed by a reputable, established financial institution.
The 5 Best Low-Cost Forex ETFs for Long-Term Investors in 2025
Here are the top five currency funds that fit our criteria. We analyze each one for its specific purpose within a diversified long-term portfolio.
1. Invesco DB US Dollar Index Bullish Fund (UUP)
The UUP is the most direct way to invest in the strength of the U.S. dollar against a basket of other major world currencies. It tracks the Deutsche Bank Long USD Currency Portfolio Index.
Details
| Attribute | Detail |
|---|---|
| Ticker | UUP |
| Expense Ratio | 0.75% |
| Assets Under Management (AUM) | ~$1.5 Billion |
| Strategy | Tracks the U.S. Dollar Index (USDX) against a basket of six currencies (EUR, JPY, GBP, CAD, SEK, CHF). |
What is the Investment Case?
You invest in UUP if you believe the U.S. dollar will strengthen relative to other major currencies. This fund is an excellent portfolio hedge for U.S. investors holding significant international assets. If the dollar strengthens, the value of foreign assets reported in dollars declines. A holding in UUP would gain value, offsetting some of that loss. According to the Federal Reserve’s 2025 projections, moderate interest rate policies continue to support dollar stability, making UUP a core holding for currency hedging.
Potential Risks and Considerations
The fund’s expense ratio of 0.75% is higher than many equity ETFs. The fund’s value will decline if the U.S. dollar weakens. Its concentration on the Euro (over 57% of the index) means its performance is heavily influenced by the USD/EUR exchange rate.
2. Invesco CurrencyShares Euro Trust (FXE)
FXE offers direct exposure to the Euro. It is designed to track the price of the Euro against the U.S. dollar. The fund holds actual Euros in a deposit account, making it a pure play on the currency.
Details
| Attribute | Detail |
|---|---|
| Ticker | FXE |
| Expense Ratio | 0.40% |
| Assets Under Management (AUM) | ~$300 Million |
| Strategy | Tracks the price of the Euro in U.S. dollars by holding physical Euros. |
What is the Investment Case?
You add FXE to your portfolio if you anticipate long-term strength in the Eurozone economy relative to the United States. It is a useful tool for U.S. investors to diversify away from the dollar. If you plan future expenses in Euros, such as travel or property purchase, holding FXE helps mitigate the risk of a declining dollar increasing those future costs. European Central Bank data from Q2 2025 shows stabilizing inflation, which presents a positive long-term outlook for the currency.
Potential Risks and Considerations
Economic or political instability within the Eurozone directly impacts the fund’s value. The 0.40% expense ratio is a direct drag on performance. As a single-currency fund, it lacks diversification compared to basket ETFs.
3. Invesco CurrencyShares Japanese Yen Trust (FXY)
FXY provides targeted exposure to the Japanese Yen. Like FXE, it holds the physical currency in a bank account, ensuring its price closely follows the JPY/USD exchange rate.
Details
| Attribute | Detail |
|---|---|
| Ticker | FXY |
| Expense Ratio | 0.40% |
| Assets Under Management (AUM) | ~$150 Million |
| Strategy | Tracks the price of the Japanese Yen in U.S. dollars by holding physical Yen. |
What is the Investment Case?
The Japanese Yen is traditionally seen as a “safe-haven” currency. During times of global economic stress, investors often move assets into the Yen, causing its value to rise. A long-term investor uses FXY as a defensive holding to hedge against global market volatility. Bank of Japan policies, particularly their stance on interest rates, are the primary driver of the Yen’s value. Monitor these policies closely.
Potential Risks and Considerations
Japan’s long-term demographic and economic growth challenges put pressure on the Yen. The country’s central bank has historically intervened in currency markets, which adds a layer of uncertainty. The fund’s performance is entirely dependent on the JPY/USD exchange rate.
4. Invesco CurrencyShares British Pound Sterling Trust (FXB)
FXB is structured to reflect the price of the British pound sterling. The fund holds pounds in a deposit account, offering pure exposure to the GBP/USD exchange rate.
Details
| Attribute | Detail |
|---|---|
| Ticker | FXB |
| Expense Ratio | 0.40% |
| Assets Under Management (AUM) | ~$100 Million |
| Strategy | Tracks the price of the British pound in U.S. dollars by holding physical pounds. |
What is the Investment Case?
An investment in FXB is a direct investment in the UK economy. Investors who believe the UK’s economic outlook is stronger than that of the U.S. should consider this fund. The pound’s value is highly sensitive to Bank of England monetary policy and UK economic data. As of mid-2025, the UK economy shows signs of recovery from earlier inflationary pressures, providing a potential entry point for long-term investors.
Potential Risks and Considerations
The UK’s economic performance post-Brexit remains a source of volatility. The smaller AUM compared to other funds on this list suggests slightly lower liquidity. Political events in the UK often have an outsized impact on the pound’s value.
5. WisdomTree Emerging Currency Strategy Fund (CEW)
Unlike the others, CEW offers diversified exposure to a basket of emerging market currencies. This provides a different risk and reward profile compared to single major currencies.
Key Details
| Attribute | Detail |
|---|---|
| Ticker | CEW |
| Expense Ratio | 0.55% |
| Assets Under Management (AUM) | ~$50 Million |
| Strategy | Provides exposure to a basket of emerging market currencies through forward currency contracts. |
What is the Investment Case?
You invest in CEW for long-term growth potential. Emerging market economies are projected by the IMF to grow faster than developed economies. This growth often translates into currency appreciation over the long run. The fund is diversified across multiple countries, reducing the impact of a negative event in any single one. It gives you exposure to currencies like the Mexican Peso, Brazilian Real, and Chinese Yuan.
Potential Risks and Considerations
Emerging market currencies are more volatile than major currencies. Political risk and economic instability are higher in these countries. The fund’s use of forward contracts is a more complex structure than the physical holdings of the Invesco funds. Its lower AUM makes it the least liquid option on this list.
Comparison of Top Low-Cost Forex ETFs
| Ticker | Expense Ratio | Strategy Focus | Best For |
|---|---|---|---|
| UUP | 0.75% | Long U.S. Dollar Index | Hedging against a strong dollar. |
| FXE | 0.40% | Long Euro | Direct investment in the Eurozone economy. |
| FXY | 0.40% | Long Japanese Yen | A defensive, safe-haven holding. |
| FXB | 0.40% | Long British Pound | A direct bet on the UK economy. |
| CEW | 0.55% | Basket of Emerging Currencies | Long-term growth and diversification. |
How to Invest in Forex ETFs: A Step-by-Step Guide
Adding low-cost forex ETFs for long-term investors to your portfolio is straightforward.
- Open a Brokerage Account: If you do not have one, open an account with a major online broker that offers commission-free ETF trading.
- Define Your Goal: Determine why you want currency exposure. Are you hedging, seeking growth, or diversifying? Your goal dictates your choice. For example, choose UUP for hedging U.S. dollar strength. Choose CEW for exposure to global growth.
- Research Your Chosen ETF: Read the fund’s prospectus on the issuer’s website (e.g., Invesco, WisdomTree). Understand its holdings, fees, and specific risks.
- Determine Your Allocation: Decide what percentage of your portfolio to allocate. Financial advisors often suggest a 2-5% allocation to alternative assets like currency funds for diversification. Start small.
- Place Your Order: Log in to your brokerage account, search for the ETF ticker (e.g., “FXE”), and place a “buy” order. Use a limit order to control the price you pay.
Risks of Forex ETF Investing
You must understand the risks before you invest.
- Market Risk: Currency values fluctuate constantly due to economic data, central bank actions, and geopolitical events.
- Interest Rate Risk: A country’s interest rates heavily influence its currency’s value. Unexpected changes from a central bank will cause volatility.
- Counterparty Risk: For funds using derivatives like CEW, there is a small risk that the other party in a contract will default.
- Tracking Error: The ETF’s performance might not perfectly match the currency or index it is designed to track.
Frequently Asked Questions
What is a forex ETF?
A forex ETF is an exchange-traded fund that allows you to invest in currencies. It trades like a stock on an exchange. It either holds physical currency or uses financial contracts to track the value of a single currency or a group of currencies.
Are currency ETFs a good long-term investment?
They are a good tool for diversification and hedging for long-term investors. Holding a small portion of your portfolio in foreign currency ETFs protects you against a decline in your home currency’s value and provides exposure to global economic trends. They are not typically primary growth drivers like stocks.
How are forex ETFs taxed?
Tax treatment for currency ETFs is complex and differs by fund structure. Funds holding physical currency like FXE are often taxed at higher ordinary income tax rates, not the lower long-term capital gains rates. Consult a tax professional for advice specific to your situation.
Do currency ETFs pay dividends?
Most currency ETFs do not pay dividends. Their return comes entirely from the price appreciation of the underlying currency. Some funds that use futures contracts might have distributions related to interest rate differentials, but this is uncommon for the funds on this list.
Which forex ETF is best for a beginner?
For a U.S. investor, UUP is a good starting point to understand currency hedging. It helps offset the currency risk of international stock holdings. For non-U.S. investors, an ETF tracking the U.S. dollar serves a similar purpose.
Can you lose all your money in a forex ETF?
While it is theoretically possible for a currency’s value to go to zero, it is extremely unlikely for major world currencies like the U.S. dollar, Euro, or Yen. You can, however, lose a significant portion of your investment if the currency you invest in weakens substantially.
How much should I invest in currency ETFs?
A small allocation, typically between 2% and 5% of your total investment portfolio, is a common recommendation for diversification purposes. The exact amount depends on your risk tolerance and your existing international exposure.
Conclusion
Your next step is to analyze your current portfolio’s international exposure. Do you own stocks of foreign companies? If so, you already have currency risk. Select one of the ETFs from this list that aligns with your long-term view. Consider UUP to hedge against a strengthening dollar or FXE to diversify away from it.
Start with a small position. Monitor its performance relative to your other assets to understand how currency movements affect your wealth.
