USD vs CAD for Canadians

[Lpw54]

Hedging makes sense if you want your portfolio to be consistent in one currency (say CAD) but you're holding both CAD and USD investments. For example, if you have $100K (CAD) in US stocks you can sell $100K (CAD) USD.CAD and now you're flat USD. I use IB to do this. Very easy and cheap. On IB there are 2 ways to do a currency conversion: FXCONV and IDEALPRO. FXCONV does a straight conversion and settles in cash. IDEALPRO holds a position in the currency pair (long or short). For hedging don't use FXCONV.

Thanks for this - I should've paid more attention to IB's two currency conversion methods! So for IB users, why would they look at CME currency futures or any other method to hedge?

 

[GaryBtrader]

For an average account I wouldn't bother with futures since each contract is $100K. Using FX you can get down to sub-dollar granularity. Since the FX market is so liquid there is no issue trading odd lots ($25K is the standard on IB).

 

[Bad_Badness]

Thanks for this - I should've paid more attention to IB's two currency conversion methods! So for IB users, why would they look at CME currency futures or any other method to hedge?

To avoid margin interest when you borrow in a currency, versus purchase the currency. Also the futures for small players is liquid enough. But to be clear, I rarely use it because the 100K notional value is too large.

 

[Lpw54]

To avoid margin interest when you borrow in a currency, versus purchase the currency. Also the futures for small players is liquid enough. But to be clear, I rarely use it because the 100K notional value is too large.

OK thanks...so if I have $10K of USD cash sitting in my IB account, and I sell $10k of USD.CAD via IDEALPRO, I don't incur margin interest? I'd just be paying margin interest on the USD.CAD amounts exceeding my USD cash balance (ie. $10K in this example)?

 

[Cabin111]

In the US trying to expand my Canada/international (safe) exposure. Ways I play Canada include; mining, banks, pipelines, food stuffs (BG and ADM). Also put some in Australia (EWA)...Commonwealth type of thing.

Some of my holdings are; REMX, RING, FICDX, BNS, ENB, EWC.

Also WY...Holding in US/CAN.

 

[Bad_Badness]

OK thanks...so if I have $10K of USD cash sitting in my IB account, and I sell $10k of USD.CAD via IDEALPRO, I don't incur margin interest? I'd just be paying margin interest on the USD.CAD amounts exceeding my USD cash balance (ie. $10K in this example)?

Correct. It gets more interesting when you are base cash in CAD and buy USD based stocks. There you have two exposures, the Stock and the CAD-USD rate, plus you are on margin for the USD you are borrowing. BTW: since you are at IB, note if you create a virtual FX position with IdealPro, you can manually zero out the virtual position. De-virtualize it?