Basic hedging question

A

Aetey

My base currency is the EUR. I plan on trading futures on CME which will of course expose me to currency risk.

Am I right in assuming that I can eliminate the currency risk from my trades by shorting the USD when I take a long position in a commodity and by going long the USD while being short a commodity?

What can go wrong here, what am I not seeing? Naysayers, let's have it! :)

Thanks all,
Aetey
 
http://en.wikipedia.org/wiki/Currency_overlay

"Currency overlay is a financial trading strategy or method conducted by specialist firms who manage the currency exposures of large clients, typically institutions such as pension funds, endowments and corporate entities. Typically the institution will have a pre-existing exposure to foreign currencies, and will be seeking to;

* limit the risk from adverse movements in exchange-rates, i.e. hedge; and
* attempt to profit from tactical foreign-exchange views, i.e. speculate.

The currency overlay manager will conduct foreign-exchange hedging on their behalf, selectively placing and removing hedges to achieve the objectives of the client. "

Also http://www.investopedia.com/terms/c/currencyoverlay.asp
 
Quote from OddTrader:

http://en.wikipedia.org/wiki/Currency_overlay

"Currency overlay is a financial trading strategy or method conducted by specialist firms who manage the currency exposures of large clients, typically institutions such as pension funds, endowments and corporate entities. Typically the institution will have a pre-existing exposure to foreign currencies, and will be seeking to;

* limit the risk from adverse movements in exchange-rates, i.e. hedge; and
* attempt to profit from tactical foreign-exchange views, i.e. speculate.

The currency overlay manager will conduct foreign-exchange hedging on their behalf, selectively placing and removing hedges to achieve the objectives of the client. "

Also http://www.investopedia.com/terms/c/currencyoverlay.asp
More...

Uncle John Taylor from FX Concepts is such a boutique :

http://www.fx-concepts.com/

Aetey,

did you perform a correlation matrix for all commodities / EUR ?

http://en.wikipedia.org/wiki/Correlation_and_dependence
 
You must be cautious.

Your only Exposure will be the positive or negative P/L of your cme trading . If you are long for example es you are not long USD/EUR !
 
Quote from Aetey:

I plan on trading futures on CME which will of course expose me to currency risk.
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Yes only if you exchange any profits back to base currency (I forget about the spread in the conversions which you cannot escape.)

Since the probability of that event is only 5%, that is you making any money in CME, why wasting time to explain to you hedging?

FYI only trend followers care about exchange risk. Fast traders exchange back to base currency on a daily basis to limit fx risk.
 
Aetey> For instance with Interactive Brokers you can have your money in Euro at all times. ANd use it as margin to trading the US market.
 
Quote from Aetey:

What can go wrong here, what am I not seeing? Naysayers, let's have it! :)

Thanks all,
Aetey
More...

It's so easy a caveman can do it!
 
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