Hedging US Portfolio Exposure

[Nick Radge]

[SaidBitar]

Very interesting topic, actually this will eliminate the worries that i had regarding trading long term the ASX stocks [Volatility of AUD/USD].

So for example
my account base currency is USD
I will use the currency pair as AUD.USD (since this is the one in IB)
this will give me two zones Hedge zone and No Hedge zone
Hedge Zone is when the AUD.USD breaks above the upper channel then I will buy AUD with the amount in USD equivalent to my account size (trading the strategy)
If the AUD.USD breaks the lower channel then i will close the forex trade since now it is in my favour.

regarding the forex trade I think since it is RegT account i can do it in the same account that i will be using for the trading strategy. but the question is since in forex the leverage is a bit high 40:1 should i use it or i need to have additional cash only for the hedging purpose.

[Nick Radge]

I’m actually using futures to hedge.

[ScottMcNab]

So…to hedge a cash account with AUD as base currency trading trading in US stocks (eg 80k US momo strategy) one way to go about it with IB would be to trade the US momo in the cash account but use my reg-T account in times when AUD rising (sufficiently to trigger hedge) to buy 80K of AUD.USD ?

with a margin of 40:1 that means would take 2k out of reg-T account balance. (…which would obviously need to allow for in making calculations for MOC system traded in reg-T)

[RobGiles]

Thanks for that video Nick.

With IB, you can elect to settle FX trades as IDEALPRO which creates a ‘virtual FX position’ or FXCONV which converts real currency exposures to the currency that you have elected to convert to. Which settlement method have you used in the past?

[#REF!McGrath]

I’m curious as to how anyone with a SMSF who is trading US stocks is hedging their US exposure & which broker/method you are using to facilitate this?

I’ve been looking at IG who offer multi-currency balances for Share Trading accounts. They also offer FX CFD’s for SMSF which is what you would use for the hedge.

Does anyone have experience using IG for this purpose?

[RobGiles]

I have only ever used an IG CFD account for my family trust (not SMSF) but the bid / offer spread on currency pairs is manipulated, especially when you are running stops. I don’t use that account any more.

[#REF!McGrath]

Assume base currency is AUD & account size $A100,000. I purchase US stocks with value of $US70,000.

To hedge the currency risk of a rising AUD i would buy 1 AUD/USD futures contract as the contract unit is $100,000 Australian dollars per contract specs?

[Nick Radge]

That’s correct.

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