An exchange traded fund (ETF) can help simplify your trading life. While currency trading of any sort involves a great deal of risk, ETFs not only take away a degree of this risk, they help you by making trading more simplified. By diversifying risk, ETFs should be a lynchpin of your trading strategy.

Currency related ETFs from ProShares or Barclays will help spread out your investments because ETFs are, by definition, basket funds. This means that rather than putting all of your money into one risky currency, your investment is diversified—in other words, only a portion of your capital is related to the currency. With a well-diversified set of investments and the Elemental Trader, you eliminate a great deal of risk. A successful portfolio will also have higher risk investments; this is a good place for your currency trading. As you can see, investing in ETFs and currencies are two separate things with two separate outcomes and purposes.

There are some downfalls to ETF investing, however. ETFs are bought and sold just as shares of stock are. You will have a higher commission on these trades than you would if you just purchased currencies over the counter as you do in the general forex market. The extra price means a couple things. The first and foremost of these is the fact that ETFs are generally safer investments; the extra you pay is for that safety. The other thing is that ETFs require larger amounts of initial trading capital. The more you invest, the less work your ETF has to do to overcome the portion removed as a commission or handling fee.

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