It is possible to trade in the currency market by having an Exchange Traded Fund (ETF) instead and whilst there are fundamental differences between the two entities, they are both essentially tracking the same market.
Unlike forex a currency ETF works exactly like a regular stock but moves in tandem with the currency market. Whilst there are some notable similarities, such as sensitivity to the economic climate, interest rates, inflation and the facility to select currency pairs, there are some very significant differences which bring distinct benefits.
The first difference that comes to mind on initial inspection is the spread. However, whilst they can look very dissimilar, they are exactly the same – but with an ETF the decimal place is shifted making it look completely different.
The ETF has the edge when it comes to rollovers as the economy of scale that is available means that shareholders benefit whilst forex traders lose out.
However, ETFs do not tend to have the variety of choice that most forex traders are able to select from, although this is not such a disadvantage if an investor primarily deals in the majors. Another downside for those that have the nerves of steel and deep pockets which allow heavily leveraged trading, it that the risk is deeply reduced on ETFs. Whilst some forex brokers will offer ratios up to 200:1, the leverage available on an ETF is greatly restricted and although this does mean less chance for a huge windfall, there is also much less risk. For those that like to up the ante, it is possible to trade on leveraged ETFs but nowhere near the levels seen in forex.
ETFs, whilst still bringing gains on a daily trade, are probably better suited to those looking for a longer term view on their particular currency pair. However, trading in this manner can demand a different kind of knowledge about how the market is likely to perform and the external economic factors which will play a part.
As well as trading in a currency pair, it is also possible to trade in a basket of currencies with an ETF, but this is a far riskier option. With so many different variables in play, it becomes much more difficult to predict movements and these kind of investments are better for a short-term trade.
With both forex and ETFs, currency trading is a much bigger playing field and many traders are starting to opt to include both types of investment in their portfolio to reap the different rewards which each one offers.
