Page 161 - Ultimate Guide to Currency Trading

as more long AUD/USD and more short EUR/SEK while putting less into your short USD/NOK and even

less so into your short EUR/CZK. By this time you should be getting a feel for what works in the market.
Perhaps the short EUR/CZK is a bit of a long shot and you would divide that small part in half, putting

half again into a short EUR/PLN position. This way you would be very well diversified across five
currencies, each with different reasons for doing well, and each with different movement rates.

Research, and use your practice account to learn how different currency pairs work together
to capture gains in the stock markets. You can soon dis-cover that the one-tenth solution is perfect for

accenting the returns of your T-bill portfolio.

Currency ETFs: Monitoring, Tracking, Trading
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 currencies 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

Essential are in turmoil and your FX trades are falling in value.