Currency hedging

[Aifel]

Hi traders,

I'm mainly a stock investor and not forex trader so please excuse my possible ignorance.

My domestic currency is CZK and I have 22.5k USD worth portfolio.

What I did was that I shorted -22.500 USD.CZK at price around 21.5USD/CZK (total circa 500k CZK) in my Interactive Brokers account.

However in my November statement I see I paid 1694CZK as a USD Debit Interest. That means (1694*12)/500.000 = 4%/yr for this position! Interest rate of Czech Koruna is 0.5%, US dollar is 1.5%, therefore I should be paying only 1%/yr interest when shorting USD.CZK. Maintenance margin for USD.CZK position is 20k CZK (circa 1k USD) so interest from margin should neither make a big amount.

There are probably some other expenses that I don't know about.

Can you please help me? Thanks in advance.
Martin

 

[nooby_mcnoob]

You can't short (borrow) something without paying interest. If you want to hedge, you buy a futures contract or an option.

 

[MattZ]

Maybe your broker charges more in fees on less liquid markets.

 

[Aifel]

to nooby:
Paying interest is ok however what is the base I pay the interest from? Margin or the total worth of the position?
Second interest is difference between interest rates of the currencies and in case of -USD/CZK it´s only 1%.

 

[Pippi436]

https://www.interactivebrokers.co.uk/en/index.php?f=1595

For a FX position you will be payed/charged the interest rate differentials on both legs. Look at interest rate payed/charged in the link above. You get nothing for your 21.5K USD leg and should pay like 3% for the ~500K CZK leg.

 

[Aifel]

Thanks for the link Pipi436, now it´s pretty clear. I have to close the position.

I would like to hedge using the futures, but Czech koruna is not so popular currency and I see the volume on USD/Czech koruna futures is 0 (http://www.cmegroup.com/trading/fx/emerging-market/czech-koruna.html).

Does anyone have any idea how to hedge Czech koruna?

 

[truetype]

I would like to hedge using the futures, but Czech koruna is not so popular currency and I see the volume on USD/Czech koruna futures is 0

Don't worry about CME fx futures volumes. The markets are arbed against cash. Just offer at fair value minus ε and you'll be taken.