Hedging - Psychology and Money Management | futures io social day trading
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  #1 (permalink)
 Vendor: www.futrac.com 
Paphos, Cyprus
Futures Experience: Advanced
Platform: CQG;Genesis Trade Navigator
Broker/Data: RJ O'Brien
Favorite Futures: Futures
Trader J's Avatar
Posts: 15 since Apr 2012
Thanks: 0 given, 10 received


A question that came up (again) during our yearly analysis, was hedging against currency fluctuations, fluctuating interest rates and inflation, countries being broke, brokers going broke, banks going broke.

For example, if one makes 25% per year trading Commodities, based on a US Dollar account but the US Dollar loses 25% against the Swiss Franc and your base currency is in CHF, then you have worked a whole year and nothing to show for it!

Hedging can be done in a number of ways. First is to be consciously aware of the fact that currency fluctuations (can) play a major role in the end result of your account. It means that a broker must be chosen with the possibility of a multi-currency account where it is easy to switch between currencies. Since this is not leveraged, it is not FOREX trading.

For example, at the moment the Euro has a Sell Signal against the USD. To hedge, one can trade either a Futures contract, take an option or just switch to the USD temporarily. As the account increases in size, currency fluctuations become more and more important.

There is a time value to money. A Euro now is worth more than a Euro in the future. Money by itself is just printed paper and has hardly any intrinsic value. For example, comparing money to a physical Commodity like Gold, it would take 105 ounces of Gold to buy the median single family home in the USA. In 2001 it took less than the 601 ounces of Gold - that is an 80% down move! So there is a reason to think about hedging against inflation and other unforeseen circumstances! Most people just can’t keep up over the years despite hard work.

I would be interested to receive some input from forum members. How do you hedge your trading account against inflation, currency fluctuations etc?
For us, hedging is one of the risk management parameters. Often it seems to be related to knowledge on “how to”. I would be very interested to hear from you, how do you "hedge"? What active measures have you taken or do you take to hedge? How does it look like? What are your criteria? How is your timing with regards to hedging? How do you know the "time has come" to execute your hedging plan? What active measures do you take?

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  #3 (permalink)
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Futures Experience: Advanced
Platform: NinjaTrader
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Hi There
I fall under that same case study that you describe, and I have always traded FOREX USD/EUR along side my normal trading activities to hedge for that type of fluctuations and losses.
My base currency is the EUR, but I trade 90% of my time on the US markets and thus in USD.

I usually exchange my free capital back and forth on a quarterly basis following the monthly/weekly/daily charts of the EUR/USD couple; exactly like I do for any other financial instrument: if I get a signal to buy I buy, and if I get a signal to sell like is the case nowadays, I sell...

In fact, I have switched all my free cash to USD in December Will be looking for a buy signal on the weekly chart to convert again to EUR most probably around the 1.28 area.

Successful people will do what unsuccessful people won't or can't do!

Last edited by Fadi; January 8th, 2013 at 04:07 AM.
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