Exchange-traded funds are not the only way to diversify your port­folio into the Forex market without leaving the comfortable con­fines of your IRA or 401(k). You can get many of the same benefits you would enjoy with ETFs by investing in exchange-traded notes (ETNs). Now, you may be thinking that ETFs and ETNs sound pretty similar, but they are actually quite different.

ETNs are actually senior, unsubordinated debt instruments issued by asset managers. When you buy an ETN, you [. ]>

Exchange-traded funds are not the only way to diversify your port­folio into the Forex market without leaving the comfortable con­fines of your IRA or 401(k). You can get many of the same benefits you would enjoy with ETFs by investing in exchange-traded notes (ETNs). Now, you may be thinking that ETFs and ETNs sound pretty similar, but they are actually quite different.

ETNs are actually senior, unsubordinated debt instruments issued by asset managers. When you buy an ETN, you are not buying a share of assets, you are buying debt—similar to a bond, except that a currency ETN doesnt have a set face value. Instead, the value of an ETN is based on the performance of a currency pair. However, the issuer of the ETN does not have to own any of the currency pairs on which the ETN is based. It just has to make good on its obligations.

This issuer obligation adds a wrinkle to your investing. Although it is a remote possibility, there is a chance that the issuer of the ETN may default on its debt. Again, its a remote possibility, but you should at least keep it in the back of your mind.

As you get ready to start investing in currency-based ETNs, you need to answer the following three questions:

1. Do you want to invest in one currency at a time or in multiple currencies?
2. What are the fees associated with the ETN?
3. How are the profits you earn on your ETNs going to be taxed?

Once you know the answers to these questions, you will know whether the ETN you are looking at is suitable for you or not.

Were going to analyze ETNs the same way we looked at ETFs; were going to be looking at currency ETNs from three different asset managers: iPath, Market Vectors, and Barclays GEMS. These are the three dominant asset managers in the currency ETN space at the time of this writing. Gaining an understanding of the differences in the ETNs from these three asset managers should give you the foundation you need to make intelligent investment decisions.