Not only are they relatively cheap but currency ETFs also mean investors can diversify out of the dollar and into other currencies right on the New York Stock Exchange.

The Sovereign Society’s Erika Nolan has some great ideas about how to build ETFs into your portfolio…

Global investors have fallen in love with ETFs since the first one was created back in 1992. And in 2006, the ETF market took another giant leap forward for average investors by creating currency ETFs.

But still, not many would-be currency investors know they can diversify out of the dollar and invest in currency ETFs right on the NYSE. That means you can call up and buy one with your average stock brokerage account. They’re cheap too. Some currency ETFs sell for less than US$100.

Also, here are some ideas about how you can use ETFs to build your portfolio:

1. Create a diversified currency portfolio with the click of a mouse – Protect your capital against a falling dollar.

2. Use ETFs to hedge currency risk in an international stock portfolio – If you have major position of a stock or international fund, you can short-sell the corresponding currency ETF to guard against currency risk.

3. Ride a long-term currency trend – Since they have no expiration date, you can buy and hold for a major trend.

4. Actively trade currency ETFs to position yourself for special situations – One of the major themes we’re watching relates to “overheating” in the global economy. In this market, you need to be able to “short” some of the most vulnerable currencies.

In this case, you would simply ask your broker to “sell short…” It’s that easy! And you can always place a buy-stop order to exit the position and limit the risk of being wrong.

Since most currency ETFs trade on the New York Stock Exchange, there is no problem using stop-loss orders for risk control.

Source: How to Jump in the Currency Markets with Less than $100