ETFs For The Carry Trade (DBV, ICI)

Perhaps you've heard of the carry trade. That's forex lingo for selling a currency from a low interest rate country and using the proceeds to purchase a currency from a high interest rate country. The idea is not to capture big moves, but to exploit the spread between the two countrys' interest rates.

While this may sound like a trade that is off limits to retail investors, it is in fact available for any trader to use, but perhaps you might want a more conservative avenue for using the carry trade.

There are a couple of ETFs to help you out. One is the PowerShares DB G10 Currency Harvest ETF (NYSE: DBV). DBV tracks an index comprised of long futures positions on the three G10 currencies associated with the highest interest rates and short futures positions on the three currencies associated with the lowest interest rates.

DBV can hold positions in any of the following 10 currencies: The U.S. Dollar, the Euro, the Japanese Yen, the Aussie, Canadian and New Zealand Dollars, the Norwegian Krone, the Swedish Krona, the British Pound and the Swiss Franc.

The other carry trade ETF is actually an ETN. The iPath Optimized Currency Carry ETN (NYSE: ICI). ICI tracks the Barclays Intelligent Carry Index, which also follows the G10 currencies.

Given that ICI does essentially the same thing as DBV while trading significantly less volume, DBV is the better of these two options.