Hedging against currency change for international shares

[goponcho]

Hi,

Am aiming to begin a value approach.

I wanted to buy a few shares from USA to get my feet wet. Want to buy a small parcel of maybe 2-3 companies to begin.

Is there any cheap way of hedging against currency change? I do not really want to be in the macro guessing game of which way things will move.

Maybe options? Are they cheap?

 

[cynic]

Hi,

Am aiming to begin a value approach.

I wanted to buy a few shares from USA to get my feet wet. Want to buy a small parcel of maybe 2-3 companies to begin.

Is there any cheap way of hedging against currency change? I do not really want to be in the macro guessing game of which way things will move.

Maybe options? Are they cheap?

Options tend to be expensive due to volatility, so you'd be sacrificing some of your profit for the hedge.

A better option might be to calculate the size of your exposure and open a trade for a commensurately sized currency pair.

However, it is vitally important that extra care is taken to ensure that the trade is opened in the correct direction and at the correct size.

There are some downsides to hedging with a forex transaction:

Presuming it's done on the "cash" (as opposed to "forward") one's account will incur either daily debits (or possibly credits) on account of adjustments for "SWAP" (interest differential between currencies).

Another potential downside can arise if the share broker doesn't offer forex products. In such scenarios an investor might choose to hedge with a trade from another provider. Logistical issues with maintenance of margin for both accounts can arise when the market swings wildly.

Whatever approach one takes, I thoroughly recommend that, if at all possible, one only hedges the currency on the account that holds the shares (or at the very least on a trading account with the same broker).

 

[cynic]

Further to my previous post, it has occurred to me that a currency ETF might also serve as a useful hedging instrument.

 

[goponcho]

Further to my previous post, it has occurred to me that a currency ETF might also serve as a useful hedging instrument.

Hey mate,

Thanks for replying, sorry about the delay in replying.

Im unsure what you meant in your first post. What is an example?
If i buy a USD stock, what would i buy to hedge against movements in the USD?

I can understand how the ETF would work and it seems a good option at minimal cost ( i think)

 

[cynic]

Hey mate,

Thanks for replying, sorry about the delay in replying.

Im unsure what you meant in your first post. What is an example?
If i buy a USD stock, what would i buy to hedge against movements in the USD?

I can understand how the ETF would work and it seems a good option at minimal cost ( i think)

I am a little uncertain as to what you're seeking clarification on here.

My initial response was to highlight that trading a Foreign Exchange currency pair would normally be more cost efficient than taking an equivalent options contract due to the time value component inherent to options.

 

[goponcho]

I am a little uncertain as to what you're seeking clarification on here.

My initial response was to highlight that trading a Foreign Exchange currency pair would normally be more cost efficient than taking an equivalent options contract due to the time value component inherent to options.

Oh okay i get it, so basically buy some currency - am still new with all this!
Simple!!

Thanks.

 

[cynic]

Oh okay i get it, so basically buy some currency - am still new with all this!
Simple!!

Thanks.

You've almost got it. Basically you're wanting to sell the denominated currency of your international portfolio and buy the equivalent value in domestic currency. (In this instance selling USD to buy AUD.) That way if the foreign currency loses value against the domestic currency the decline in value of the portfolio is offset.

 

[brentrgclayton]

HEY Everybody,

I have been searching for a simple solution to the following currency issue I have as follows:

-Transferred 50k AUD into USD to trade options on the NYSE
-I'm looking to remove currency movement as a problem, I don't care to bet on it either way. I just want to ensure I get 69cents for each USD on the way out. I understand there will be some cost for this.
- Can I buy a certain product at a value for each 1k or 10k that I transfer.

I'm basically trying to take currency out of the equation because if i make 10% and the currency moves 10% against me I might as well go and have a piss into the wind.

Any help would be much appreciated. This has been driving me up the wall for a good week.

Cheers,
Brent