Currency exchange traded fund (ETF) is a fund that allows profit traders from the most liquid financial markets on the planet, the Forex market. ETF currency is one of the latest trade instruments available. Just like traditional exchange trade funds, ETF currencies are also traded like stock. The only difference is that they track foreign currencies, not indexes or shares.
ETF companies create currency exchange traded by funds by buying and holding foreign currencies in a fund. Then funds from funds are provided for traders. Every time the price of foreign currency rises (usually against the US dollar, USD) all ETF values rise and so on as stock prices. Every time foreign currency falls in the opposite event.
At present there are a number of ETF currencies available for trading which can be classified into three broad categories.
ETF that tracks the single currency: here every part of ETF currency represents a fixed amount in one foreign currency. Examples include the British Pound Trust (FXB), the Currencyshares Euro Trust (FXE), Currencyshares Swiss Trust (FXF), Australian Dollar Trust (FXB), Japanese Currencyshares Yen Trust (FXY), Canadian Dollar Trust (FXC), etc.
ETF that tracks a number of currencies: Usually this is a currency that shows a larger correlation. Examples include Powershares DB A.S. Bearish Dollar (UDN) and Powershares DB A.S. Bullish Dollar (UUP); Tracking currency includes Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swiss Franc (CHF) and Swedish (SEK) Krona. The number and proportion of currencies can vary with funds to fund.
ETF that tracks the currency index: this number is less. Examples include DB G10 Currency of Harvest Fund (DBV) – IT Track Deutsche Bank G10 Currency Future Harvest Index.
There are many advantages to trade ETF currencies than trading currency, shares, and other ETFs.
They are easily traded. They traded like stocks that allow traders to buy, hold and sell them through brokers.
They are instruments that track the most liquid market in the world.
They are a good choice for diversifying the portfolio.
They offer better tax savings than stock.
They allow traders to invest in economic growth throughout the world that are not difficult to reach.
They are a good instrument to hedge the decline in dollar rates.
They are transparent instruments are ETF companies must reveal the exact detention of funds every day.
They are flexible trade instruments that are in accordance with different trader styles and risk tolerance levels.
They can be abbreviated and traded margins. They can also be used in complex trading strategies.
But as other trade instruments there are also risks. The exchange rate of foreign currencies can quickly fall with global economic changes, policy changes and political problems. For the benefit of traders must be sure about the selection of their funds and market time.