Forex ETFs

Exchange Traded Funds (referred to as ETFs) are similar to mutual funds, but with some significant differences.  They tend to be very liquid and trade with tight spreads.

They’re transparent... easy to buy and sell... and offer a great way to diversify with very low costs because they are unmanaged and simply follow a pre-determined index or the market price of a commodity — such as the value of a foreign currency.

All you need is an online stock brokerage account in order to buy and sell currency ETFs.

The oldest currency ETF has been available since December 2005. Most didn’t even launch until mid-2006 or 2007.  And, new ones continue to be introduced frequently.

Most currency ETFs are actually investment trusts that hold physical currency in trust for all the fund’s investors. They are designed to track the underlying currency in dollar terms.

For example, if you were bullish on the Japanese yen, you would buy a Japanese yen ETF. Then, if the price of the Japanese yen rose by 15% versus the US dollar, your Japanese yen ETF would also rise about 15% in value.

Exchange traded funds can be bought and sold anytime during normal trading hours on the New York Stock Exchange (NYSE) and Toronto Stock Exchange (TSX).  A few currency ETFs are even available on the London (LSE) or Frankfurt Exchanges.

There are even currency "basket" ETFs which give you exposure to several different currencies at the same time. You can buy the emerging markets like India, China, Mexico, and Brazil.

You can purchase inverse currency ETFs that rise in price as their underlying currency drops in price, so you can easily short a currency without worrying about setting up a margin account.

You can even purchase currency ETFs with built-in leverage that earn twice the returns if the underlying currency rises or falls... depending on the specific ETF.

If you’re bullish on a particular currency, you simply buy an ETF that tracks that underlying currency. If you’re bearish, the easiest way to short the currency is to buy an inverse ETF.

Visit the following ETF individual websites to learn more about the wide assortment of trading opportunities.  Be sure to read each prospectus carefully... especially if you intend to trade within your IRA.

1. www.currencyshares.com

2. www.invescopowershares.com/products/

3. www.hbpetfs.com/fundSummary.asp

4. www.proshares.com/funds

5. www.wisdomtree.com/etfs/index.asp