Hedging currency risk

[shortbleu]

I am a UK resident and my daily expenses/bills are in GBP.

I progressively invested in USD denominated assets.

A few years ago, most of my net worth was in GBP, and little was in USD. Currency hedging was made (and is still made) by buying GBP / selling USD via a UK spot forex broker and as the GBP/USD FX rate was going down, I've been making unrealised marked to market losses in the FX spot broker account and unrealised marked to market FX gains on the USD denominated assets.

I've had to replenish my GBP denominated FX spot broker account a few times to maintain the currency hedge. The replenishment were made with fresh GBP money and it was not a problem as my GBP net worth was far greater than my USD net worth at the beginning.

But now, my USD investments represent the vast majority of my net worth and in proportion I have little GBP money set aside. Therefore the size of my currency hedge has increased quite a lot and if the GBP/USD FX rate keeps going down, I fear I won't have enough GBP cash to replenish the FX spot broker account to maintain the currency hedge (I want to keep the currency hedge but I am not sure I will have enough GBP cash to do so going forward).

How can I maintain the currency hedge if I have no more GBP cash to replenish the FX spot broker account due to unrealised marked to market losses in this account?

Of course I could sell part of my USD denominated investments and convert them to GBP and then replenish the FX spot broker account with GBP, but I don't want to sell my USD investments as I am quite happy with them.

As any one a solution?

I am a retail investor, and the size of my USD investments are in dozens of thousands $$, not millions so cannot hedge using futures or FX forwards as an instutitional would do.

 

[Martinghoul]

Don't think there are any good options available to you. Unless you talk to your FX broker and get them to accept your USD assets as collateral.

 

[LeeD]

I think Martinghoul gives the best advice.

As Dollar appreciates, you loose on the hedge but you should be making what you looseon appreciation of you dollar investments. A few equity brokers offer currency transactions in the same account. For example, if you have cash in GBP and want to buy equity in USD, the broker lands you the necessary funds in USD using your GBP as a collateral. Now borrowing USD against a collateral in GBP is a natural hedge and is exactly what forex brokers do (except they dress it as an overnight swap for legal purposes). When USD depreciates you win on the currency side and when USD appreciates gains in the USD-denominated assets pay for the currency margin.

On a side note, in the last half a year GBP depreciated aginst USD by about 5%. Such a move in either direction is normal and should be taken into account when you consider margin required for a currency hedge.