Hedging Forex in Interactive Brokers for option trading

W

whiskeyjack

Hello; i have an EUR account on IB and i trade future index options on the S&P500 (E-Mini);the size of the account is well above the 100,000; if i keep the cash in EUR i pay negative interest rates plus borrowing costs as i'm told to cover the margin of the options i need USD (and those costs are substantial)
If i change my cash in USD i get positive interest rates and don't have borrowing costs for margins but i'm exposed to the EUR.USD FX and i can't have that.
I need to be completely hedged on the FX, not pay negative interests on the EUR and not pay borrowing costs.
So the only solution is to convert all the EUR into USD and hedge the position; i know i could use futures but have my reasons to prefere not to and look at an alternative.
I'm told to change all the EUR into USD with FXCONV (sell EUR and Buy USD) this way i have real USD on the account)
Do the opposite operation with IDEALPRO, buy EUR and sell USD; idealpro will give me a virtual currency and gets rolled authomatically everyday.
This way i would have USD cash for positive interest rates and to use for margins and virtual eur currency to hedge the USD position.
I just want to be sure that this works, does that makes sense?
 
I guess your problem is unsolvable. You want "the goods" of both USD and EUR at the same time. How can you assume the market (or IB) to give that to you for free?
 
If I was working with a “physical” trader I would change in usd and use a forward to hedge the position. Then I would roll the forward. That would have a cost that I would be willing to pay.
Can’t do OTC with IB i think.
So I was told that ideal pro was the tool that worked like that. Like doing a daily forward that gets rolled daily as it doesn’t really deliver the currency.
Honestly I don’t care about interests as long as they are not negative and I’m willing to pay an hedging cost.
But I can’t have Fx risk and I’m not willing to pay borrowing cost.
 
Your info is completely wrong and it doesn't work.

There is no "virtual currency", only "virtual fx position" which is just an entry to track your fx gain/loss.
 
whiskeyjack said:
If I was working with a “physical” trader I would change in usd and use a forward to hedge the position. Then I would roll the forward. That would have a cost that I would be willing to pay.
Can’t do OTC with IB i think.
So I was told that ideal pro was the tool that worked like that. Like doing a daily forward that gets rolled daily as it doesn’t really deliver the currency.
Honestly I don’t care about interests as long as they are not negative and I’m willing to pay an hedging cost.
But I can’t have Fx risk and I’m not willing to pay borrowing cost.
More...
Market won't give you the items on your wish list for free...
 
Look. I clearly wrote that I’m willing to pay an hedging cost so I don’t expect the market to give me anything for free. If I could use a forward that would have a cost. If I hedge with futures that would have a cost. I’m just looking for an alternative from using the futures as I can’t do a forward with IB.
I had been told that if I change euro into usd with FXCONV I get the actual currency delivered. Now I just need to hedge it.
Again they told me that with IDEALPRO the currency doesn’t get actually delivered so it’s a virtual position (my mistake for writing virtual currency) that would offset the previous one covering the hedging risk. But at the end I would have usd on the account as the FXCONV would have delivered those. Obviously this would have a cost. If this doesn’t work I’ll use the futures.
If I was convinced about what I have been told (I never used IB before but only brokers that could do OTC transactions) I wouldn’t be here asking in a forum if that works...
 
OK, I was reading your posts like "I'm not willing to pay negative interest while still having EUR".

But let's indeed focus on your last sentence of your previous post:

"But I can’t have Fx risk and I’m not willing to pay borrowing cost."

Additionally:

"i know i could use futures but have my reasons to prefere not to"

First, your "offsetting idea" ("FXCONV vs. IDEALPRO") does not exist. Of course in a real account you can only do real conversions, not fake ones (i.e. ones that give you the positives you want but not the associated negatives).

If you don't want to use futures there are also other products to hedge FX risk (for instance ETFs). Before making a list of these products it would be nice to know what your preference is in that direction (i.e. don't you want to use any hedging instrument or only not futures?).
 
As it appears what I’m told doesn’t work I’m actually thinking of using futures after all. It seems the best way.
I found that I can trade the globex emini Fx (code E7) that have a contract unit of 62,500€.
So let’s say I convert 125,000€ into usd and need to hedge this. Is it correct I should buy 2 futures and I would be perfectly hedged? Thanks
 
Yeah, you also have 6E (the normal one). I think that is $125k so maybe better to do that one.

If you just do a future far ahead you do not need to roll over.
 
You must log in or register to reply here.
Back
Top