Direct Currency Trading vs ETF

FX is open 24 hours a day, ETF is only tradeable when the stock exchange is open. Compare the charts you will see a lot of gaps on the ETF chart.
 
I certainly wouldn't try to trade a currency etf. FX spot gbp.usd trades like water. No expense fees. For a long term (more than one year) hold probably not much difference. Spot can be very good taxwise if you are not a Christian. There is no tax on currency conversions. Only you and god know if it's a conversion or a trade and the IRS is still trying to figure it out. Plus, spot you can put on right down to the dollar your size. If something bad happens wouldn't want to be trying to get out of an etf (or spot for that matter.)
 
Spot usually has better spread as well, but that is mainly of concern in very active trading.
Negatives can be the interest charged/given by your broker, which usually is not that great... so on long term holdings you tend to lose a lot on credit/debit rates...

But spot is pretty straightforward... simpler that etf, and no counterparty risks
 
JackRab said:
... simpler that etf, and no counterparty risks
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How do you figure that? ETFs don't have any more counterparty risk than any other cleared security. Perhaps you were thinking of ETNs? And no counterparty risk with spot? If the broker/bucket shop you're trading spot with goes under do you really think you'll get your money back? Unless by spot you mean actually going to another country and withdrawing Euro/Yen/... from an ATM and bringing it back to put under your mattress.
 
Sig said:
How do you figure that? ETFs don't have any more counterparty risk than any other cleared security. Perhaps you were thinking of ETNs? And no counterparty risk with spot? If the broker/bucket shop you're trading spot with goes under do you really think you'll get your money back? Unless by spot you mean actually going to another country and withdrawing Euro/Yen/... from an ATM and bringing it back to put under your mattress.
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o_O ETF is issued by an issuer, so there's some kind of risk... maybe I worded it wrong by saying counterparty. Is should say issuer. And ETF's can also be skewed when shorting isn't allowed for instance...

I don't do bucketshops, because... why the f@#$ would you engage in business with that? Also, I think about insurance etc in which broker to choose (IB in my case).

Don't be an idiot @Sig, what do you think is meant by spot... Are you still upset about our discussion a few weeks back?
 
JackRab said:
o_O ETF is issued by an issuer, so there's some kind of risk... maybe I worded it wrong by saying counterparty. Is should say issuer. And ETF's can also be skewed when shorting isn't allowed for instance...

I don't do bucketshops, because... why the f@#$ would you engage in business with that? Also, I think about insurance etc in which broker to choose (IB in my case).

Don't be an idiot @Sig, what do you think is meant by spot... Are you still upset about our discussion a few weeks back?
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First, the inability to find shares to short is a legitimate issue with ETFs that you wouldn't find in spot forex. However ETFs are not subject to the uptick rule, so trading halts would be the only thing to impact you there.
As to the original post, I was giving you the benefit of the doubt by asking if you were talking about actual cash because that's the only scenario I could imagine where you'd have less counterparty risk than trading an ETF (not that it doesn't have its own severe disadvantages). First, I think you're still confusing ETFs and ETNs. ETNs are issued by an issuer, ETFs are not. ETFs are management investment companies or unit investment trusts that hold assets and are not at all subject to the counterparty risk of an issuer.
You also may be unaware of the fact that SIPC insurance doesn't cover forex positions ("SIPC does not protect commodity futures contracts (unless held in a special portfolio margining account), or foreign exchange trades... from http://www.sipc.org/for-investors/what-sipc-protects) It does protect securities including ETFs. IB's additional Lloyds insurance only extends the maximum amount of the SIPC protection, it doesn't extend the protection reach, so still no insurance on your forex at IB (or any other broker). This means that in a PFGBest scenario your forex position goes to the back of the unsecured creditor line and you get a few cents on the dollar back years later out of bankruptcy court, where as if you'd held the ETF you'd get your shares back very quickly without any haircut.
So in all cases except holding actual cash currency (which would of course be somewhat idiotic), counterparty risk is higher trading forex directly rather than a forex ETF.
 
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