I've never been on this thread and don't trade futures (yet). I should hope I am communicating to the "A" team by posing this question. I will be sending funds to Canada to be mostly invested in productive assets there while some will be in a Canadian Bank at any one time. I anticipate in 3 to 5 years all dollars will be repatriated to the U.S. There will be no money flowing between the two countries in the mean time. What is an effective and least expensive way to hedge such that the value of the dollar I put in Canada today will be the same at time of repatriation in 3 to 5 years? I saw there are respective ETF's for the U.S. and Canadian currency. Does it make sense to buy calls on the UUP and puts on the FXC ? For every $ 100K sent across the border, how many options to buy ? How long should expiration be ? For instance, should expiration be 1 year and at every sixth month, close out the options and roll them forward 6 months ? Is it more efficient to open an FX account and seek a strategy there ? If so, what recommendation to structure the positions ? For that matter, any comment on what brokerage to use, as its purpose is only to put on positions for this currency hedge ? Please point me in a prudent direction. Much thanks in advance !
do nothing. consider yourself fortunate that you have found a productive way to diversify from the USD.
Just open a spot FX account at one of the buckets. If you're a Canadian resident maybe you could even open one with the leverage not available in the US (i.e. 400:1) Whatever amount of CAD you're long in your banking and trading accounts, just offset it with an equal opposite position in your FX account. If you have high enough leverage you can do this with a relatively small amount of margin used.
zdreg and steve.......... thank you. It appears quite easy; less messy than dealing with options. I'll find out what a "spot account" is. Dunno what a "bucket" is other than possibly an extrapolation from the anachronistic bucket shops of old, a la Jesse Livermore era. Yes, I prefer funds not be resting in cash, but there will be some intermissions of working capital occasionally having to sit in a bank. I have been staging in a bank since late December, and already have taken a 4% hit from spike up of the dollar. Additional future woes is the Canadian dollar being hostage to a big commodity exporting country when that trade is faltering in a slowing world; check out EEM plunge in the last month. Regardless of my scenario, my question is applicable to a broad number of cases. I expect to start wintering overseas after finding that sweet spot for doing so. That means keeping cash overseas. Could mean sufficiently so to trade in local markets. Depending on how dispirited I get from posters on your thread, zdreg, and the balloting results related to U.S. becoming Greece, I may have to eventually stay overseas ! http://www.elitetrader.com/vb/showthread.php?s=&postid=3825678#post3825678
Exactly right. At most, hedge *part* (say half) of the amount by selling Canadian dollars forward. The bank that is involved in your investment can do this for you (at a hefty commission unless you shop around) but using a forward contract may still may be better than taking a spot forex position. If you attempt to do this with a spot forex position, you will pay rollover fees every day which will add up to a hefty amount over the years. One form of low-cost forward is to use Canadian dollar futures. This may be the easiest way and is accessible through any futures broker. Again, do not use a forex broker unless they are extremely sophisticated and do forwards as well as spot transactions. No retail U.S. forex brokers offer forwards at retail. Some do offer them to commercial clients (which you could likely qualify as). Talk to Oanda and Friedberg Mercantile Group in Toronto, as two possibilities. Unless you know what you are doing, you will likely be taken for huge fees if you do this through a local bank. Options would likely cost too much unless structured just right as a partial hedge. Here again you would want OTC forex options. It can be done but again you will be taken by the bank unless you know what you are doing. OTC forex options are not offered at retail in the U.S. Again, Friedberg in Toronto could do it for you but get a two-sided quote from anyone. Do not accept a one-sided quote.
I was referring to a spot Forex broker like Oanda. If you're American you can open an account with 50:1 leverage. So if you want to hedge $50,000 you would just deposit $1000 in the Oanda account and go short USDCAD with it. Keep in mind you'd pay about $5 in spread cost and you'd pay the swap rate since you're shorting the currency with the higher interest rate (around 1% swap)
comintel AND steve.......... This is precisely what I was asking for ! I hardly know what you are talking about, because I don't know the vernacular. But I am a learner and will study on my own. Your outline of possibilities appears to be perhaps beyond where I have been navigating in the last 24 hours. After your first post, Steve, I responded So through my equities trading brokerage MB Trading, yesterday I applied for opening a FOREX account so I could do this "easy" thing. The account should be approved tomorrow or after the weekend. I want to understand what you two are saying, but it is not your burden to educate me. I got a call back today from MB Trading acknowledging my on line application. At my request, he told me resources I can tap into to start my learning. The brokerage has its own tutorial on how to use one of their platforms for trading, and he steered me to it. Good. He also referred me to babypips.com for a primer. I have scanned the latter and much there goes beyond my immediate objective, but I anticipate learning some of the language. I really don't mind bearing down more deeply than my immediate need though: I love what I do as a pair trader, but others have encouraged me to look at FOREX for trading, too. And so I will. I'm not ready for book reading in any depth. I just want to understand the basics. If there are any other resources that come quickly to your minds that could allow me some basic studies, I would welcome your suggestions. I think it is the CBOE (?) that has lots of education on options. I wonder if FOREX has a counterpart to that ? I googled just now FOREX futures learning and came up with some possibilities. I very much thank you both kindly for your offered (specific !)directions and cautions. My appreciation to the max ! Trade well and prosper !