How to protect my account against F/X-loss

M

MouseClick

Hello,

I plan to shift my focus from European stocks to US stocks. My home currency is the Euro, but it makes more sense to open an account with an US online broker, because their fees are much lower when it comes to trading US stocks.

My question is this: What is a good way to protect myself against currency effects? Are there any products (ETFs etc.) that you can recommend? Should I trade the currency itself, bonds, SWAPs or similar products (which I have no experience in)?

We are talking about an account of 100,000 EUR = 160,000 USD (plus profits :p ). The account is meant to be kept for several years, so the means of currency protection should reflect that.

I do NOT intend to make any money from the F/X fluctuations. All I want is to have a more or less cheap "insurance" against the currency effects.

Thank you all for your advice!
- MouseClick
 
Quote from MouseClick:

Hello,

I plan to shift my focus from European stocks to US stocks. My home currency is the Euro, but it makes more sense to open an account with an US online broker, because their fees are much lower when it comes to trading US stocks.

My question is this: What is a good way to protect myself against currency effects? Are there any products (ETFs etc.) that you can recommend? Should I trade the currency itself, bonds, SWAPs or similar products (which I have no experience in)?

We are talking about an account of 100,000 EUR = 160,000 USD (plus profits :p ). The account is meant to be kept for several years, so the means of currency protection should reflect that.

I do NOT intend to make any money from the F/X fluctuations. All I want is to have a more or less cheap "insurance" against the currency effects.

Thank you all for your advice!
- MouseClick
More...

Hi Mouseclick,

if you just want to keep the rate stable all you have to do is opening 2 accounts, one in Euro and one in US$ fund one account with 50k Euro and the second one with US$ representing the value of 50k Euro converted to the exchange rate you get when doing the transaction.

Then there you are perfectly hedged with the 100k Euro. Things might get complicated when trading but when you do some maths you can easily figure out what to do. For daytrading it probably doesnt matter wich account you are using and for position or investments with longer time frame you can split up the position to both accounts equally.
 
Quote from Pita:

Hi Mouseclick,

if you just want to keep the rate stable all you have to do is opening 2 accounts, one in Euro and one in US$ fund one account with 50k Euro and the second one with US$ representing the value of 50k Euro converted to the exchange rate you get when doing the transaction.

Then there you are perfectly hedged with the 100k Euro. Things might get complicated when trading but when you do some maths you can easily figure out what to do. For daytrading it probably doesnt matter wich account you are using and for position or investments with longer time frame you can split up the position to both accounts equally.
More...

Hi Pita,

thanks for your reply! But I'm afraid I don't get the point. :eek:

The 50k in Euro would be fine, but what about the 50k converted to US$? If the dollar drops, I will lose money once I change it back into my home currency which is Euro... (that the Euro is stronger doesn't help me, because it's my home currency and all my expenses are Euro-based).

-MouseClick :confused:
 
Quote from MouseClick:

Hello,

I plan to shift my focus from European stocks to US stocks. My home currency is the Euro, but it makes more sense to open an account with an US online broker, because their fees are much lower when it comes to trading US stocks.

My question is this: What is a good way to protect myself against currency effects? Are there any products (ETFs etc.) that you can recommend? Should I trade the currency itself, bonds, SWAPs or similar products (which I have no experience in)?

We are talking about an account of 100,000 EUR = 160,000 USD (plus profits :p ). The account is meant to be kept for several years, so the means of currency protection should reflect that.

I do NOT intend to make any money from the F/X fluctuations. All I want is to have a more or less cheap "insurance" against the currency effects.

Thank you all for your advice!
- MouseClick
More...

Isnt this a question you should put to a US Broker
 
Easiest solution...

Open a FX account with a broker that allows you to trade any amount. (It's been a long time since I used them, but OANDA used to be my broker for this) Than at the end of every trading day, hedge your balance in USD with a forex trade to convert it into EUR. (You hopefully only have to add to it :D )

Alternative, use IB, keep your base in EUR and every day do an FX to convert profits back into EUR...

Hope this helps

Quote from MouseClick:

Hello,

I plan to shift my focus from European stocks to US stocks. My home currency is the Euro, but it makes more sense to open an account with an US online broker, because their fees are much lower when it comes to trading US stocks.

My question is this: What is a good way to protect myself against currency effects? Are there any products (ETFs etc.) that you can recommend? Should I trade the currency itself, bonds, SWAPs or similar products (which I have no experience in)?

We are talking about an account of 100,000 EUR = 160,000 USD (plus profits :p ). The account is meant to be kept for several years, so the means of currency protection should reflect that.

I do NOT intend to make any money from the F/X fluctuations. All I want is to have a more or less cheap "insurance" against the currency effects.

Thank you all for your advice!
- MouseClick
More...
 
oanda is the way to go. a more difficult question is how much to hedge?how many years worth of future expected income(in additional to existing balance) should one hedge?
 
Quote from H2O:

Easiest solution...

Open a FX account with a broker that allows you to trade any amount. (It's been a long time since I used them, but OANDA used to be my broker for this) Than at the end of every trading day, hedge your balance in USD with a forex trade to convert it into EUR. (You hopefully only have to add to it :D )

Alternative, use IB, keep your base in EUR and every day do an FX to convert profits back into EUR...

Hope this helps
More...

Thanks for your help,

please allow me two follow-up questions:

1. What is "IB"? Sorry, but I'm new to this... :confused:

2. If I use a forex trade, how much would it cost to hedge for example 150,000 USD over a period of 1 year (I intend to buy and hold stocks for a few weeks; no day trading). I never did any forex trading, so maybe you could give me an example including fees to give me a rough idea of how big this "insurance premium" would be. By the way: how scaleable are those forex trades (in increments of how much $/EUR)?

Thanks for your time,
MouseClick :)
 
Quote from MouseClick:

Hi Pita,

thanks for your reply! But I'm afraid I don't get the point. :eek:

The 50k in Euro would be fine, but what about the 50k converted to US$? If the dollar drops, I will lose money once I change it back into my home currency which is Euro... (that the Euro is stronger doesn't help me, because it's my home currency and all my expenses are Euro-based).

-MouseClick :confused:
More...

Hi Mouseclick,

the suggestion I gave of course is only good if you want to freeze the current rate - what you lose in the Euro you gain in the US$ and vice versa. Otherwise just open an account nominated in Euro with IB for example. To hedge or speculate the currency relation afterwards you can play Forex, Currency Futs or FXE (ETF Euro/$).

Hope that helps more,
Pita
 
For a hedge against a fall in the USD, why not just buy 1 EUR futures contract (valued at 125k Euros). Renew it quarterly. It actually sells at a slight discount owing to the higher ECB discount rate.
 
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