Exchange rate risk on broker accounts??

[john5000]

For those of you who have deposits w/ international brokers, how do you manage your exchange rate risk? Do you hedge against a suitable forex derivative, etc.??

 

[the blades]

For those of you who have deposits w/ international brokers, how do you manage your exchange rate risk? Do you hedge against a suitable forex derivative, etc.??

John,

I have an IB account for trading US shares. I've hedged this with a spreadbet on the £/$, probably cheaper ways of doing this but not readily available to me.

Cheers,
UTB

 

[frugi]

John - little or no hedging required as my broker (IB) allows a base currency of GBP for trading products in any currency. Profits and losses in, say, USD are retained as a +ve or -ve balance until such time as I convert them to GBP. I guess yours may not otherwise you wouldn't have asked, but many do. If not I have to admit a long term spread bet in the requisite pair would be reasonably effective, if not a perfect match for your a/c balance, as would a similar spot position through your broker (e.g IB's IDEALPRO) , though I believe there may be minor interest rate complications.

Blades - I was just wondering why you didn't choose a base currency of GBP? That way profits in USD can be immediately converted back into GBP and there is little exchange rate risk.

Or are you perhaps keeping yr profits in USD and hedging them as opposed to yr whole a/c balance? Sorry if that's a personal question.

I tend to let $ accrue up to 50% of my account value above a rate of 1.9 with a long term view of converting back into GBP at say 1.7, otherwise I convert them every week or so. This may of course backfire if the $ seriously plummets. In this case I wonder if I could withdraw the funds in $ (to spend in the Caribbean ). I guess I'd need a US bank account to do this, and I bet they're a bugger to open.

 

[the blades]

John - little or no hedging required as my broker (IB) allows a base currency of GBP for trading products in any currency. Profits and losses in, say, USD are retained as a +ve or -ve balance until such time as I convert them to GBP. I guess yours may not otherwise you wouldn't have asked, but many do. If not I have to admit a long term spread bet in the requisite pair would be reasonably effective, if not a perfect match for your a/c balance, as would a similar spot or position through your broker (e.g IB's IDEALPRO) , though I believe there may be minor interest rate complications.

Blades - I was just wondering why you didn't choose a base currency of GBP? That way profits in USD can be immediately converted back into GBP and there is little exchange rate risk.

Or are you perhaps keeping yr profits in USD and hedging them as opposed to yr whole a/c balance? Sorry if that's a personal question.

I tend to let $ accrue up to 50% of my account value above a rate of 1.9 with a long term view of converting back into GBP at say 1.7, otherwise I convert them every week or so. This may of course backfire if the $ seriously plummets. In this case I wonder if I could withdraw the funds in $ (to spend in the Caribbean ). I guess I'd need a US bank account to do this, and I bet they're a bugger to open.

Frugi,

Thanks for the response. However, when I say "trade" I really mean I have a portfolio of stocks open that remain open for months - in $. When I sell one, I'll buy another, so I have ongoing $ exposure. My base currency is £, but I'm still exposed on the stocks (aren't I?).

Cheers,
UTB

 

[frugi]

Gotcha Blades that makes perfect sense, thanks. My scalping mindset is clearly far too ingrained. Positions for a number of ... months ... good grief ... eternity no less. lol. :cheesy: Also I had 3 hours sleep last night having got into a bit of trouble in the Kospi from which I only managed to extricate myself at 5am, so I'm not too sharp today.

 

[the blades]

Gotcha Blades that makes perfect sense, thanks. My scalping mindset is clearly far too ingrained. Positions for a number of ... months ... good grief ... eternity no less. lol. :cheesy: Also I had 3 hours sleep last night having got into a bit of trouble in the Kospi from which I only managed to extricate myself at 5am, so I'm not too sharp today.

yes frugi, I'm a "medium term" trend follower, and sleeping at night takes some practice (and alcohol)

Mind, I have an equivalent down bet on the index of any stocks I hold, which offers some protection - but you can still get caught with your pants down as I found out recently to my cost

I'd love to develop some short term trading skills but that's for another day.

Have a nice weekend, I'm off for the alcohol.
UTB

 

[kentrj]

Hello the blades

Do you mind if I enquire about your hedging method for your share portfolio? From your previous posts you seem to enjoy a good deal of success and I am trying to develop something along similar lines for UK shares.

Do you find it better to hold open a down bet on the index all the time, or would a limit order to sell if the index falls below the most recent swing low be as effective? Alternatively, would there be any merit in having as half of the portfolio shares in a downtrend for shorting, on the basis that if the general market falls, the weakest are likely to be affected more than the strongest (and vice versa)?

Best wishes
Richard

 

[the blades]

Hello the blades

Do you mind if I enquire about your hedging method for your share portfolio? From your previous posts you seem to enjoy a good deal of success and I am trying to develop something along similar lines for UK shares.

Do you find it better to hold open a down bet on the index all the time, or would a limit order to sell if the index falls below the most recent swing low be as effective? Alternatively, would there be any merit in having as half of the portfolio shares in a downtrend for shorting, on the basis that if the general market falls, the weakest are likely to be affected more than the strongest (and vice versa)?

Best wishes
Richard

Richard,

Firstly, I don't want to give you the impression I have any pedigree as a trader, but I have had some decent success over the last few years using mechanical trend following methods. My hedge is also a mechanical system, which is counter trend on the FTSE and S&P. So I add to my positions (ie go more short) if the index rises a certain point further than a predetermined average, and close the short positions if it falls, effectively increasing my exposure. I don't apy much attention to highs and lows, but maybe I should.

I don't short shares, as backtesting a reverse trend following system of shares gave very noisy results and didn't smooth the equity curve as expected. For example, 9/11 brought a bounce from many shares ina downtrend, probably because of a change in sentiment of the sector they were in (obviously many people make money shorting stocks, just not me). I short the index itself.

Let me know if I can "help" further.

Cheers,
UTB

 

[kentrj]

Thanks for your reply UTB

Please forgive my ignorance (I'm new to this), but I don't quite understand why you close the short positions when the index falls. Isn't that when you most need them to counterbalance your other shares?

Were there any particular books or references that influenced you in developing your strategy that you would recommend?

Best wishes
Richard

 

[the blades]

Thanks for your reply UTB

Please forgive my ignorance (I'm new to this), but I don't quite understand why you close the short positions when the index falls. Isn't that when you most need them to counterbalance your other shares?

Were there any particular books or references that influenced you in developing your strategy that you would recommend?

Best wishes
Richard

Richard,

The system is a "mean reversion" type - so it's based on the theory that if it moves over a certain distance, it's likely to move back. Hence closing shorts if the market falls.

To be honest, I think there's more info around this website than any book, but the one I like the most is "the ultimate trading guide" by Hill, pruitt and Hill. This is for systematic trading, if youre into that.

Cheers,
UTB

 

[kentrj]

Thanks for your advice the blades. I'll check out the book.

Good luck with your trading (and your team).

Richard

 

[the blades]

Thanks for your advice the blades. I'll check out the book.

Good luck with your trading (and your team).

Richard

no problem.

Plenty of luck needed on both fronts

UTB