One of the safest, if not the easiest way, of investing in the currency market is by investing in currency exchange-traded funds (ETFs). ETFs are built like mutual funds on the inside, but trade during the day like a stock. ETFs have become very popular in the past five years, and more and more have popped up over time. Some of the more successful ones have become stock day trader’s favorites, and some have been used by large fund managers to build positions easily in otherwise difficult to obtain markets.

Currency ETFs have all of these good features and more. Inside they are usually invested in money-market cash accounts in the home country of the currency. In this way, they follow the price of the currency as their value, and often pay as nice a dividend as the interest rates allow. Their interest is paid once a month, and is usually not reinvested into the ETF.

Some of the best currency ETFs are managed by CurrencyShares (www.currencyshares.com/home/CurrencyShares.rails ). This company offers many FX alternatives, including ETFs for the euro, Swedish krona, Russian ruble, Swiss franc, Australian dollar, and others.

If you are looking to get into currency trading for diversification purposes and to capture gains in currencies against the USD but are wary of highly leveraged accounts, then perhaps investing in currency ETFs are for you. You can buy these in a normal full-service or discount brokerage firm just the same way you would purchase a stock. You can enter limit orders, stop losses, and take profit orders just the same way that you would be able to on a stock, and very similar to how it would be done in a regular Forex account.

You can build your portfolio to include a variety of hedges using ETFs. You could build a hedge against your long AUD, SEK, and CZK positions by buying a volatility index future ETF such as VXX. With this ETF you can gain upside return when the markets are in turmoil and your FX trades are falling in value.

You can even use leverage to buy these products, but your leverage would be limited just as it would be when buying as stock.

This is actually a good alternative for many investors who are just getting into watching Forex pairs and getting to know the FX market. In order to invest properly you will still need to read your broker’s reports, go to central banking websites, etc. You might find that FX investing with currency ETFs is perfect for you. If you like it, then work it into your overall investment plan and reap the rewards that FX investing can bring.