Personal Finance & Money Asked on December 15, 2020
I have a EUR cash account with Interactive Brokers and I trade US stocks. So I converted my euro’s for dollars. But now when my US /dollar stock portfolio is up but eur/usd is down it is hurting my performance.
What is the best way to hedge this currency risk? And what is the cheapest option? And preferably can this be done without using margin?
Thanks guys,
Rick
Using FX Futures Contracts is the standard way of hedging currency risk.
Lets assume that you want to invest 125k EUR in US stocks. In the moment you exchange the 125k EUR to USD, you also buy one Euro FX Futures Contract - https://www.cmegroup.com/trading/fx/g10/euro-fx_contract_specifications.html.
As long as you hold the US stocks you will have to rollover the futures contract and when you sell the stocks, you also close the futures position. Your 125k EUR initial capital is 100% protected to currency rate fluctuations. If you want to protect the P&L as well, you can make future position size adjustments at rollover time.
Just to add that you need a margin account in order to transact futures. It would not work in a cash account.
Answered by Kim Gold on December 15, 2020
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