If the dollar keeps going down, does it effect my GBP in the long term?
I have a question, I have a few stock that are doing really well, there listed on the US Stock Exchange, my based money is GBP. I'm long on all the stocks, and as I've mentioned there all doing really well, however ...
If the dollar keeps going down does this mean even though I'm making a profit, I'm actually losing money in the long term? i.e. If I close all non base-currency?
You can easily hedge your currency exposure via a long position in GBPUSD.
Let us assume that - calculated at today's exchange rate - your stock's value is GBP 100,000. As you are long the USD against the GBP, you need to open a short position in the USD to hedge your exposure. This is identical with a long position in GBPUSD.
So all you need to do is to buy 1 lot (GBP 100,000) in the FOREX market and keep it as a hedge. In case the USD will devalue against the GBP you stocks will lose value, but the long position in GBPUSD will rise by an equal amount. In case the USD gains strenght against the pound you will win on the stocks and lose on the long position.
The above calculation assumes that you have not bought your stocks on USD margin. In this case you would only need to hedge the net exposure. This is particularly true for a futures contract. The net currency exposure for a futures contract is only the margin used to guarantee the position.
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When I took my CTA license exam we had to calculate how to hedge. My advice is if you have access to a hedging course then it will teach you how to hedge w/ options, futures options, currencies etc..
My buddy had a swiss bank account held in Euro's. That is the only thing that saved him when times got tough a few years ago as he made 30% on his money in Europe!
After trading Currencies for a couple years. I found that it seems there are the commodity currencies USD/CAD, USDNZD, AUDUSD, the European currencies and the US DOLLAR where they really run apart from each other...
I never imagined the AUDUSD would be over parity.... Amazes me.
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