Forex trading is indeed taken a huge following in the recent days. As stock trading become more complex to trade on and with much speculations and corporate ethics on the line, most traders these days have trusted Forex trading a great deal. Forex trading itself is a much simpler and easier trade to understand. Even so as Forex trading giving a sweet deal to major traders, its more risky than stock markets. For example maybe you are an investor with European stocks, even if the European currency is admirably sound, but there are concerns about the euro zone financial crisis and debt crisis that may lead to a falling euro. One major hedge against any of the cases is to short sell the euro against the dollar. but this transaction involves placing an order in the Forex exchange market which is in every way risky and in most cases leveraged. But then with currency ETFs you problem could solved easily. Currency exchange traded funds are able to provide a distinctively simple solution for the problem, hence by tracking currencies by the use of cash deposits or rather future contracts could lead to investors gaining exposure to one or the other currencies without being hit by risks that are associated with the Forex markets.

How it works

As presented above, ETFs are able replicate currency movements in the exchange market by two ways, one by holding currency cash deposits in the currency being tracked. or two by the use of future contracts of the currency underlying. The two methods have been reputed to bring a collated return for the actual movements of currency. The funds also involve little management hence reduced management fees.

Currency ETFs

www.currencyshares.com/ which is able to track down the Swiss Franck, hence when there is a probability of the Swiss rising against the dollar, you buy the EFT, when it’s supposed to fall you short sell. Another EFT is one that is able to track a basket of different currencie s for example PowerShares DB US Dollar Bullish and Bearish funds. When the US dollar is set to fall you buy the PowerShare DB US Bullish EFT and vice versa when rising. There is other EFTs including the DB G10 currency harvest fund which tracks the Deutsche Bank’s Future Harvest Bank.

Advantages of ETFs

EFTs has quite a number of advantages. First EFTs is easy to trade, buying and selling them is a very easy process with selling done any time using any kind of broker. They are secondly tax efficient, EFTS are created in a way that the have lower portfolios turnover hence strive to reduce capital gains contributions, therefore investors can only be taxed when they initiate a trade. In using EFTs there is great level of transparency that is involved as it disclosing on the daily basis exact holdings. This is achieved by allowing you to exactly knowing what you hold and what you should pay. With EFTs also you can be able be able to do anything with it like sorting and holding them in margin accounts or placing then on limit orders just like stocks. Indeed, trading EFTs is much better and flexible.