Newbie question: whats the best way to hold a long term hedge in eur

Discussion in 'Forex Trading' started by scriabinop23, Jul 1, 2006.

  1. I don't trade forex nor futures, but am looking for a way to get -long- exposure to the euro (i am in the US) without exposure to weak equity markets that are highly linked to our own equity markets. So this rules out purchasing european stock market funds.

    I also assuming holding forex positions doesn't make sense because of high long term margin interest costs - but correct me if I am wrong. If I buy 50k worth of euros on forex, if I read correctly on IB's site, I am at minimum required to have $1k (1:50 margain req) to maintain that position (if it doesn't move against me). But I assume that would mean I'm paying to borrow $49k to maintain that position. This wouldn't work for a long term hedge. So if I buy $50k of euros in $100k account, will that order not consume the margain? Also, do I pay a different margain interest rate for forex positions versus future positions or stock positions held in margain? I assume not.

    Also, do I earn interest on my forex position ? If I do, at what rates? ( i assume euro overnight average versus dollar).

    For this position to even break even, the dollar would need to drop more than the amount of interest it pays out. But I'd like to at least figure this out. Again, not interested in short term currency trading.

    If any one has any better ideas or techniques how to maintain a good USD hedge without spending much on margain interest and not missing out on lost income from cash (ie in the 5% range right now), please post it here. I assume due to my lack of experience here, I may be going at it all wrong.
  2. rosy


    you could buy the euro ETF 'FXE' or buy a bond/note/CD denominated in euros.
  3. wow. that's simple.

    I read this article, after your post:

    Some forex manager makes this comment:

    "Once you enter a derivative like an ETF, you lose liquidity," says Ward. "If the market starts tanking and you want out, who will be there to buy your position? In the spot market you always have a buyer and seller because many players need the currencies to transact international business."

    Care to discuss this? I lack an a precise understanding of inner workings of these ETFs to make sense of this statement. I assume these ETFs are structured to have an ask price equal to the spot price of the respective currency, and upon me buying, the ETF purchases more Euros at spot. Is this how it works?

    If so, then his line must be garbage attempting to dissuade people away from Forex trading, because upon a sale or purchase of this ETF, regardless of price, the ETF is purchasing or selling at spot (and bid or ask is adjusted appropriately).
  4. change the base currency in your acct to in $ and yen.
  5. Lets say I want to buy $1000 worth of US options from the euro account - will any excess exchange fees be incurred?

    And upon sale of the asset, will be automatically be settled in Euros (or whatever respective currency) ?

    Also, does anyone know a good online resource showing this information:

    1) currency/country latest inflation rates and estimates
    2) budget surpluses or deficits (and debts) for countries (of the respective currency)
  6. here's how am tradin': i have € and some £ in my acct and trade in $, [somtimes in ¥]...the pnl when i close my transaction will settle in $ but will influence [obviously] the tot amount i got in € [base]. there will be the exchange rate fee to pay up once u take out the money from your acct, not before, so there wont be any additional costs for every transaction u open/close.
  7. DrChaos


    With a true ETF there ought to be no liquidity problem in liquidity as the underlying asset (in this case currencies) can be bought and sold by arbitrageurs very easily.

    The only real issue is if you want to trade in hours when normal exchanges are closed, but of course spot FX is still open.

    Spot FX is effectively closed on weekends anyway.
  8. Just buy a CD in another currency. Use