I am an Aussie trading in US equities and making a fairly decent profit. For most of this year it's been an easy ride with the forex AUD/USD being a wind at my back. I am now facing a head wind as the Aussie Dollar is going up. Maybe not for long .. but who knows. I make daily profits only to have the forex take it away. One step forward two back. Annoying. Asking you guys on what I can do to mitigate this. What road should I investigate going down ?
Your solution seems to be rather straightforward; stop trading Audusd. OK. now look at the major currencies vs USD. currencies with tends to have big day range are eur, gbp currencies which tends to have small day range are aud jpy cad. so you probably want to review which currencies to trade.
Max - he's not trading currencies! Apollo13 - Why not just hedge your currency exposure? You are interested in your worth in AUD. So, whenever you take a USD equity positions, you are effectively short AUDUSD. So, just take an equivalent long position in AUDUSD for your exposure. This can all be done with margin (doesn't even need to be with the same broker). Your cash balance should be in AUD. If you don't have that option with your broker (eg USD only) you'll need to hedge that too. Lastly, if your prior profits have been derived mainly from movements in the currency then you're probably just trading noise and don't really have much of an edge. Analyze your past trades and see where the profit actually came from.
I am not trading currencies. I can convert to AUD at any time I am not in a trade. I guess that is the option. The only problem with that is settlement. I have a lot just sitting in cash so I can get in and out quickly. (no margin). T+2 and that cash gets tied up pretty quickly. I have been making money over and above the forex movement but it's going the other way now and eating some of my profit. Going long on a forex trade is not an option. I can't do that in this account. Are there any ETF's that will hedge me ? edit: nevermind. just found GDAY and CROC... (where do they get these names) errrk another edit: One is inverse and the other has been liquidated. On the hunt again for an ETF that will allow me to hedge.
I just got another daily trade report. Up $1264.87 AUD on AMD last night. Down $1495.87 on USD ..... Treading water. There has to be a way.
There's absolutely no requirement for you to hedge in the same account or with the same broker. Remember that FX is on margin so actually doesn't need much to fund it. Periodically you'd send money to/from your hedging account depending upon where you made your FX gains/losses. Also check NYSE Arca:FXA.
I understand. I can't trade forex on my IRA. No margin. Thinking about this a little more and taking the advice of one of the other posters I think I will just liquidate my USA into AUD. This is legal.
Standard methodology to hedge foreign capital when investing in US securities is by holding FX futures. In your case, AUD/USD futures contract https://institute.cmegroup.com/products/6A > The AUD/USD futures contract is priced at 100,000 Australian dollars and the E-micro AUD/USD futures is priced at 10,000 Australian dollars.
Instead of hedging long equity with an FX position you might consider hedging out your dollar exposure with a short equity position. If you are equally short and long in USD equities then you will have zero dollar exposure besides that of the USD profits you have accumulated. EDIT: just read you are in an IRA account with no margin so the above advice will be useless to you, but I'll leave my post in case it's helpful to someone else.