This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Don't Confuse Currency, Commodities ETFs

NEW YORK ( TheStreet) -- The Wall Street Journal misunderstood the nature of some currency ETFs in a story last week that compared the WisdomTree Dreyfus Chinese Yuan Fund (CYB) with U.S. Natural Gas (UNG).

The article concluded that a buyer of CYB may not realize the gain in the Chinese yuan because speculators have already bid up the price of yuan forward contracts.

When UNG rolled its contracts this summer, it paid a steep premium between the contract it was holding and the near-month contract it wanted to buy. Each time UNG sold, it depressed the price of the contract it was selling and increased the price of the contract it bought. Other factors contributed to a situation whereby the spot price of natural gas was much lower than the contract prices for futures further out in time.

In the case of CYB, the premium it pays is not due to the fact that it rolls its contracts monthly, but rather that traders believe the Chinese currency will appreciate. CYB is not losing money every time it rolls the way UNG did. There is a premium in the currency market for yuan.

A commodities trader could purchase a 2010 futures contract and mitigate contango (while taking on other risks), but a currency trader cannot escape the premium for yuan.

In any event, it is incorrect to think of currency forwards in the same way as commodity futures. There isn't contango (when the near-month contract costs more than the current contract), nor backwardization (when the near-month contracts are cheaper). Most often, the difference in the contract prices is a result of the implied rate, or the interest-rate differential between the two currencies.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
CYB $25.45 0.08%
UNG $13.10 -1.06%
AAPL $124.25 -0.14%
FB $81.66 -0.67%
GOOG $542.56 -0.99%


DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs