ETF

Don't Confuse Currency, Commodities ETFs

Stock quotes in this article:CYB, UNG 

In conclusion, the premium in CYB is entirely driven by market expectations, while UNG was the victim of market failures. An individual can avoid the problems of UNG by doing their homework and purchasing futures contracts for their own account using a different strategy. In the case of Chinese yuan forward contracts, an individual investor would be in the same position as the Wisdom Tree ETF.

More on CYB

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The biggest difference between the prices of forward contracts further out in time is based on interest rates. Since interest compounds, longer-dated contract have a larger interest component than near-term contracts. Tuesday, I'll explain how interest rates affect forward prices and get into greater detail on currency ETFs.

-- Written by Don Dion in Williamstown, Mass.

>To order reprints of this article, click here: Reprints

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At the time of publication, Dion didn't hold any any positions in the ETFs mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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