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Hedging currency risk in short stock positions (any different from long positions?)
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Hedging currency risk in short stock positions (any different from long positions?)

  #1 (permalink)
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Hedging currency risk in short stock positions (any different from long positions?)

I am really not sure whether I am completely on the wrong path with this issue... I am getting crazy...

Can someone please have a look at the following scenarios? screenshot (and excel file)

1) Long Trade: Here I would hedge the 10000 USD

2) Short Trade: Would I also hedge the 10000 USD?

My thinking is that when I am long 10000 USD and short 10000 USD dont I have a net USD position of 0?

So what amount would I have to hedge when I have the two trades open? 0 or 10000 or 20000?

I attached a screenshot and also the xlsx in case someone wants to try some calculations...

I hope someone can help me... My head is spinning...

Attached Thumbnails
Hedging currency risk in short stock positions (any different from long positions?)-long-short-trade-currency-depreciation.png  
Attached Files
Register to download File Type: xlsx long and short trade with currency depreciation.xlsx (10.1 KB, 5 views)

Last edited by ikeaboy; April 30th, 2014 at 04:30 PM.
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  #3 (permalink)
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seems as if nobody has the same problem here... maybe a moderator can move the topic to the stock sections since the problem is not only currency related..?

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unless you're entering and exiting both positions at the same time it's best to hedge for 10,000 for each position giving you a grand total of 20,000 for two trades regardless if they cancel each other out to make things easier if you exit one position at a different time from the other.

I hope that helps.
Itchymoku


Last edited by Itchymoku; May 2nd, 2014 at 11:49 AM.
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thanks for your answer... has anyone else experience with this issue?

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lets say you had a net 0 after you have two positions on and then you took one position off. One of your remaining positions would be unprotected so you'd need to match it with 10,000. This is the reason why you should always hedge regardless if the hedges counter balance one another out.

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is the net liquidation value the amount to hedge?

maybe i took a step forward with this problem... and maybe the long short positions arent even the problem...

i have a margin account which is say USD 50.000 and which is also the net liquidation value..

dont i always have to hedge the net liquidation value no matter how strongly i am invested and no matter if i am long or short or anything?!

e.g. i have one long position on 50 % margin and I invest fully, so i would carry a USD 100.000 position... but i cannot hedge the 50 K i dont even "own"? so i would just hedge the net liquidation value of 50.000 USD

Or i have a short position with usd 20.000 on 50 % margin.. which would mean i am 40.000 in cash and 10.000 usd is margin for the 20.000 short positon... i would still hedge the 40k cash + 10 k margin, hence 50k usd which is the net liquidation value?!..

... and as the time goes on i would adjust my hedging position in eur.usd e.g. weekly to hedge the new net liquidation value which resulted from either losses or profits?!..

did i overlook something or are my thoughts right?

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has someone any idea on that?

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Hedging using 10000usd will make our heart stop if we got lost in trade..

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i dont understand?

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