How do you Hedge

Discussion in 'General Trading Discussion' started by ScooterBrandon, Jul 20, 2015.

  1. ScooterBrandon

    ScooterBrandon Senior Investor

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    I pretty much only play in the markets in which I earn currencies in (CAD and USD.)
    Does anyone get into foreign markets? If so how do you hedge against losing money due to currency rates fluctuations?
     
  2. atanasster

    atanasster Active Member

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    Good question, but it really depends on what do you hedge against - falling USD, CAD, EUR etc.? In the US markets you can trade many foreign companies as well as ADR.

    I personally do not invest in markets where the accounting practices are less regulated and can be under question, too much risk.
     
  3. petesede

    petesede Guest

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    The easy answer is that you don´t. If you are a small investor, the cost of the hedge would be prohibitive because there would be minimum costs involved that would be too high for you to overcome with your main investment.

    The best you can do is take into account the risk of a change in currency before you make the investment and then adjust your initial investment accordingly. For instance, if you think an investment will make 20%, but there is a very high chance that you will lose 15% of it due to changes in currencies, then that probably is not a good investment afterall.
     
  4. Onionman

    Onionman Senior Investor

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    I don't actively hedge, beyond having a bit more cash here or a gold ETF there. As has been said above, the cost of hedging often doesn't really make sense. I'd rather stick to having disciplines in place (stop losses, target prices) for anything I have for shorter term trades, and apply diversification for the rest. Hedging is essentially risk management and there are a number of different ways this can be approached.
     
  5. crimsonghost747

    crimsonghost747 Senior Investor

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    I don't hedge. I live in Europe but most of my investments are in USD/CAD. In the end it doesn't matter where the markets move in the short term since this is a buy & hold portfolio and the dividends get reinvested in the same currency. The weaker the euro gets the more expensive it is to buy for me but also that means that my dividend income goes up... I guess that is kind of a hedge. ;)
     
  6. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I have recently been capitalizing on the current strength of the dollar by using Euros, Yen, etc to buy certain things like metals and crude. I had been short these foreign currencies, then bought them back, then used them to buy the commodities. Commodities themselves in theory offer hedges against things like inflation, declining currency, the sky falling, etc. :D

    I do hedge my taxable account portfolios in various ways. I will buy puts as insurance against more volatile long positions. I will also buy puts as a bet against more volatile stocks I see as overpriced that are a little dangerous to actually short. I also always have at least a few short stock positions - generally in larger companies that appear overpriced, are less volatile, less likely to be bought out, etc.

    Another "hedge" I utilize is to put about 20-25% of my money in other people's funds. My retirement accounts are mostly invested in several of the top fund managers' mutual funds.
     
  7. manoharb

    manoharb Senior Investor

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    I suggest Pair trading in Forex market than hedging, In market many currencies like EUR/USD near 52 week low, USD/JPY near 52 week high, By focusing on fundamentals and technical, we can try to Go long in 1 currency and Go short in another currency.
     
  8. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Do one or both currencies sometimes go against you on such trades? How long do you typically hold a position? Do you do it quite often with much money?
     
  9. manoharb

    manoharb Senior Investor

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    I am not commodity or Currency trader in US market.but my followers are, I already said, Fundamental and Technical analysis comes 1st. Specially, what is cooking in that country's politics. you are right, sometimes both trades goes against.2 weeks ago, my call was sell Gold at 1168$ and buy USD/JPY above 122.50, time period given 2 months, USD/JPY made loss, but Gold ? It gave full profit. so, You can use many strategies, You can hedge commodity with currency too. about pair trading in currency. 52 week range and macro nos. speaks a lot about that. sometimes, sell currency/Buy index this strategy works better. everybody knew this big news, FED rate hike in Future. How you can use this news before rate hike and after rate hike ? after all individual skills of trader,analyst matters at last.
     
  10. manoharb

    manoharb Senior Investor

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    Every month after expiry, I create 1 format in Excel, according to that, i make plan. how i can stop my loss ? 1st. question in mind. There is 1 hedging style, which i use in my analysis, advanced camarilla, RSI, StochRSI, CCI, williams%r and Moving averages these are parts of my hedging strategy. according to that, I take only 5-6 calls in a month. but, they must be perfect. Trade less,invest less but earn more in percentage. Monthly RSI at 59,51 always dangerous.most times bounce-back happens from that point.FTSE100, DAX, NSE, Nikkei . In last 6 months all these index bounced back from Monthly RSI point which i mentioned. after making huge loss , 6 years ago, I observed market and tried to read future and still trying to improvise more. If i already knew, how much any stock, commodity or currency will fall if my sl. triggered, i can prepare myself with hedging. It's part of camarilla trading + Moving averages.
     

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