Hi, I would really appreciate some suggestions on how best to hedge US dollar exposure. I'm a Canadian that trades US equities. I've ridden the dollar move up by being fully invested in USD which has worked nicely. But I lack experience and a plan on how to hedge against the dollar when it reverses its trend and goes down. So far I simply buy CAD in 1/4 increments to my total account to balance the risks. With the move in the USD yesterday for example I reduced my USD exposure from 100% to 75%. If it reverses trend I'll go 50-50. The problem with this approach is that it takes out half of my buying power, leaving me with 50% of all of my money in CAD cash. Which brings me to ask you guys, how can I hedge more efficiently and retain more of my USD buying power? Futures, options?? I'd appreciate any suggestions. Thank you in advance!!!
You could trade futures. However the contract size is CAD100,000. So if you want to hedge in 1/4 account increments your account needs to be at least 400,000. The other problem with this is you're effectively taking on some extra risk. Depending on your broker you might need to stump up margin, so it will use up some cash. What you've described is effectively like running a CADUSD trend strategy on top of your equity portfolio, rather than 'hedging' per se.
Unfortunately my account is around 50K. What about options? Otherwise some other ideas that I know of is to short the DXY or UUP etfs. Or maybe look into shorting a triple or double US dollar ETF. That would give some leverage.
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