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Trade USD Quoted Futures as a person living in EUR Zone most effectively
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Trade USD Quoted Futures as a person living in EUR Zone most effectively

  #1 (permalink)
BW / Germany
 
 
Posts: 7 since Jan 2018
Thanks: 4 given, 1 received

Trade USD Quoted Futures as a person living in EUR Zone most effectively

Hi,

I started trading Forex and I'm now about to make the transition to Futures Trading.

Therefore I struggle a little bit with finding the best workaround to catch the fluctuations between EUR as my base currency and USD as the currency that the actual trading is going to happen.

Recently I have raised an account with Tradestation (EUR) and I'll soon start to trade USD quotes futures with their platform.
I try to avoid a scenario where I make a deposit, make money trading, but am actually flat because of EUR/USD flucations, by the time I'd like to extract money back to my bank account again.

What is the best way to solve this?
- Converting EUR to USD by the time I make the wire and then hedge with the same amount LONG against EUR/USD so that this position is basically flat? Sounds good in theory, but how would you do that practically?
- Keep the Base currency in EUR and ignore the fluctuations ?

There's probably other and better workaround's to this that I'm not getting right now - I'm looking forward to hear about your approaches

Thanks a lot

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  #2 (permalink)
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  #3 (permalink)
Legendary Market Wizard
Houston, TX
 
Trading Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 2,970 since Dec 2013
Thanks: 2,411 given, 5,316 received


My experience in this is the other way around. USD account occasionally trading EUR dominated futures (FDAX, FGBL).

If you do nothing your account will show a EUR positive balance, and a USD margin call. As long as the net of the account is positive you will be fine, but the broker will probably charge you a financing charge on your negative USD margin.

All profits or losses will be in USD. If they are profits you will build up a balance which eventually will offset your margin requirements and help you avoid a financing charge. If they are losses, your broker will probably charge you a financing charge on your losses.

You should probably check what financing charge you will charged. Some brokers are fair some less fair.

Your only currency exposure is on your profits and losses, and not the margin, or notional value of the contracts.

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  #4 (permalink)
BW / Germany
 
 
Posts: 7 since Jan 2018
Thanks: 4 given, 1 received

Financial charge = Margin Interest Rate?

Hi,

so the more trades I take, the more EUR's will be, one at a time, converted to USD's?
Is the financial charge you mentioned basically the Margin Interest Rate ( tradestation.com/pricing/stocks-etfs-margin ) and what would you consider as a fair rate?

If that's the case it would be 8.5% for me which seems to be pretty expensive tho so it would make more sense to convert the whole balance to USD right away?

Thank you!

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  #5 (permalink)
Legendary Market Wizard
Houston, TX
 
Trading Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 2,970 since Dec 2013
Thanks: 2,411 given, 5,316 received

I don't know so I would call Tradestation and ask them. I'd be amazed if they USD margined you at 8.5% when you have EURs in the account but then I'm amazed they charge 8.5% for small balances but only 2% for large ones.

If you were to convert your entire account from EUR to USD then your entire account would then be exposed to the currency risk.

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  #6 (permalink)
Europe
 
Trading Experience: None
Platform: RTP, IRT
Favorite Futures: ZB, FGBL
 
Posts: 53 since Apr 2016
Thanks: 53 given, 52 received

Regarding margins, I don't know what the usual procedure is, but here is how my broker handles my non-USD account. As far as I know, it is not required that a foreign currency balance is converted in order to buy USD-denominated instruments. When buying/selling products that settle in USD, I generate a separate USD balance. So, a EUR balance can be used to cover margin at the exchange. Any profit/loss from trading those USD-based instruments will settle in USD. So, I will be generating a separate USD balance. Once a month, my broker goes through and covers any debit currency balances by converting funds. In this case, if I had a loss in USD - by broker would convert funds from EUR (or whatever other currency) to USD to cover the amount of the debit balance. They do not convert positive balances (but I can do that manually).

It seems to me that your initial question was not about margin, but about hedging currency fluctuations. Since I manly trade intraday, I am not really faced with that problem. If you want to avoid those fluctuations, as far as I see, the only option is to hedge (FX, FX-Futures, SWAP etc.).

Hope that helps.

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  #7 (permalink)
BW / Germany
 
 
Posts: 7 since Jan 2018
Thanks: 4 given, 1 received

I once had a conversation with their Support and they basically told me the same as you guys - I will ask them which costs are involved for that conversion besides the actual EUR/USD rate (financing charge) and let you know:

Quoting 
If you send EUR following our EUR wiring instructions we will not convert he funds upon receipt. If you place a trade that requires USD the funds will be converted and they will not be converted back to EUR once the trade is closed. You would have to contact the Client Services department to request a conversion if you wish to do so after.

@SMCJB: Yes that is where I'm not sure which path to choose. Comepletely convert or partially, whenever a trade is done, as mentioned by you guys. The Symbols I currently have developed strategies for are all USD quoted Symbols ( @CL, @NG, @JPY, @S )

@Alexander Savin: Yes that is more what the intention of my Question was, as all my trades will be Swing trades and will last a few days.
If I'd like to hedge: What would I need to do ? Is there any related topic where I could find an instruction ?

Thank you

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  #8 (permalink)
Legendary Market Wizard
Houston, TX
 
Trading Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 2,970 since Dec 2013
Thanks: 2,411 given, 5,316 received

So they basically force you to convert your currency - wow - rather neanderthal - no European customers here please!

If you have to convert from EUR to USD then you will have currency risk. You can hedge that yourself with futures - but the lot sizes are chunky. 6E/Full size is €125K while M6E/Micro is €12.5K.

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  #9 (permalink)
Europe
 
Trading Experience: None
Platform: RTP, IRT
Favorite Futures: ZB, FGBL
 
Posts: 53 since Apr 2016
Thanks: 53 given, 52 received


x6taifun View Post

@Alexander Savin: Yes that is more what the intention of my Question was, as all my trades will be Swing trades and will last a few days.
If I'd like to hedge: What would I need to do ? Is there any related topic where I could find an instruction ?

Thank you

Consider this example:
You send 100k EUR to your broker. That money is now held separately in your account.
You then buy Crude Oil futures for 20k. You have just generated a separate USD balance.
Crude Oil rises 10% and you sell. Congratulations, you now have 22k on your USD balance (incidentally, it is still your EUR balance that is being used to cover margin at the exchange).
Suppose you did not hedge and the EUR rose 10% relative to the USD during the time of your trade. If you now converted the 22k USD to EUR, your profit would be 0 (before fees and commissions).
Now ask yourself: how many EUR would you have had to own to avoid being exposed to the Forex fluctuations?

There are a couple of brokers in this forum, try to get hold of mattz.

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The following user says Thank You to Alexander Savin for this post:
 
  #10 (permalink)
Legendary Market Wizard
Houston, TX
 
Trading Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 2,970 since Dec 2013
Thanks: 2,411 given, 5,316 received


In Alexander Savin's example, if you had bought 2 M6E contracts, you would have hedged your currency exposure and would still have your your $2k USD profit from the crude trade.

Case 1 - No Hedge
Start €100K
Convert €20K to $24k at 1.20, so €80K plus $24k
Make $2k trading crude, so €80K plus $26k
Convert $26k to €19.7K to $ at 1.32, so €99.7k which is an €300 loss

Case 2 - With Hedge
Start €100K
Convert €25K to $ at 1.20, so €75K plus $30k
Buy 2 M6E at 1.20
Make $2k trading crude, so €75K plus $32k
Sell 2 M6E at 1.32 for $3k profit, so €75K plus $35k
Convert $35k to €26.5K to $ at 1.32, so €101.5k for a €1500 profit

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