Cost of hedging USD exposure

Chuck Krug

Chuck Krug

Hi everyone,
Sorry for the noobish question, but it never came up before.
As a European, how much would it cost to hedge 1 year of 100k usd exposure?
+ what are the best products to do so? futures? or anything else?
Thx
 
It completely depends. Long or short usd exposure? What size, you sure 100k or more? And what is your base currency that you aim to take exposure to?

Chuck Krug said:
Hi everyone,
Sorry for the noobish question, but it never came up before.
As a European, how much would it cost to hedge 1 year of 100k usd exposure?
+ what are the best products to do so? futures? or anything else?
Thx
More...
 
You can buy EUR corresponding to USD 100k. The interest rate schedule (your cost) at IB is:
https://www.interactivebrokers.com/en/index.php?f=1595&p=schedule

You can buy EUR futures. The interest difference if build into the price of the future. I assume buying futures is a cheaper way to do it since you will pay the same implied interest irrespective of the amount hedged - whereas at IB as you can see in the table above, you will pay incrementally smaller interest rates the bigger the amount.

The liquidity of the futures does not seem impressive, but 100k should not cost you anything significant in terms of price impact, but you will have to pay at least some of the spread plus a couple of USD in commission.

I have never hedged currency. There may be smarter ways to do it.
 
Maverick2608 said:
You can buy EUR corresponding to USD 100k. The interest rate schedule (your cost) at IB is:
https://www.interactivebrokers.com/en/index.php?f=1595&p=schedule

You can buy EUR futures. The interest difference if build into the price of the future. I assume buying futures is a cheaper way to do it since you will pay the same implied interest irrespective of the amount hedged - whereas at IB as you can see in the table above, you will pay incrementally smaller interest rates the bigger the amount.

The liquidity of the futures does not seem impressive, but 100k should not cost you anything significant in terms of price impact, but you will have to pay at least some of the spread plus a couple of USD in commission.

I have never hedged currency. There may be smarter ways to do it.
More...
I agree!
 
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