Does it make any send to US traders to 'hedge' against a falling dollar?

Discussion in 'Professional Trading' started by Daal, Jan 5, 2007.

  1. Daal


    If somebody with a 100K portfolio decides to keep 20K in eur to 'hedge' against the falling dollar(like some experts like to recommend) he is speculating on the euro expecting a return of something like 10%(dollar loses ten percent) return if he is right. Yet he is probably with a even higher expectation of return on his trading(say 15-40%). I dont think it doesn't make any sense to hedge or diversify, just put it all in dollars and swallow any loss the dollar might have. If your worried of some kind of dollar crash then I dont think you should trade in dollars at all
  2. having all your capital in dollars unhedged is pretty much the same as taking a 100k long position on forex and holding it forever. hedging removes that risk but also eats capital. its a tradeoff.

    rather than waste capital on hedging, I just keep it in a currency I have faith in, which is definitely not USD.
  3. If you live within US and only use USD in your everyday life, then it is alright that you keep only USD.

    For someone who live outside of US where living expenses and their other properties like real estate are priced in other currencies, it is usually a good practice to hold multiple currencies all the time. e.g. 10% in EUR, 10% in CAD, etc.

    Or if you live within US but you do hold properties and/or travel to a lot of places where USD is not the primary currency, then it is a similar situation that you should hold multiple currencies all the time.

    Then, the hedging part make sense because you are simply protecting your assets.
  4. Daal


    Against what?Depreciation?Thats my point. Why hold 80% expecting to make 15-40% and 20% expecting 10% when you can put it 100% expecting 15-40% with MAYBE a loss of 10%. Your more hedged against depreciation holding dollars if these returns are any true
  5. What do you gain from having yourself exposed to a single currency, esp one that is in an obvious decline?
  6. Daal


    in my example, the opportunity to trade US markets where you make 15-40% yearly. If the same can be made trading other markets then I trading them is obviously better but I think a lot of traders dont think they can get an edge in other markets as well as in the US because their more familiar with it
  7. I trade US markets but I keep my capital in CAD.
  8. Daal


    How much you pay per year in intraday margin costs. As far as I know IB charges for this
  9. nothnig because my base currency is set to USD
  10. a5519


    Very interesting discussion.

    Let's assume that the base or spending currency is CAD and, for trading US markets, USD must be used as txn currency.
    If the whole trading amount is held in CAD in order to protect against decline of USD,
    each trade must be done 100% on margin because the txn currency is USD.

    Now, in this case what is the income and the expenses.

    1) income: interest on CAD deposit (hopefully broker pays)
    2) expenses: margin interest on USD for trading
    3) no loss/gain due to USD variations
    4) trading P/L in USD that must be constantly converted to CAD

    In this case, the hedging price is the difference between between the margin interest payed and interest income earned on CAD.
    It follows, that if the base currency is a low interest currency, such as JPY or CHF, the hedging can be expensive.

    Any comments, is this consideration valid, are there other expenses?
    #10     Jan 5, 2007