Best way to buy foreign currency as hedge

Become

I posted the following under an older forex thread a while ago but got no response so I'll try again here.

"Hey Guys, anyone got an idea on this?

If the euro is tipped to depreciate in the short/medium term, you know piigs, contagion, downward pressure on € etc, and a person wanted to transfer their euros into a "safer" currency for the duration, usually these foreign deposits are held at 0% interest by your bank (asaik). What's to stop a person achieving the exact same thing by buying that currency pair as a forex transaction and just keeping the trade indefinitely open until such time as they can convert back to euro (hopefully at a profit). The spreads from the forex brokers appear to be much better than what banks offer, and depending on the % differential between the currency pair in question there could possibly even be an interest differential in your favour. Eg, if you went short on EUR/NOK, you'd be holding Kronen @ 2% interest against just the 1% of the EUR.

...was just wondering ... :-) "

irishh_bob

Become wrote: »

I posted the following under an older forex thread a while ago but got no response so I'll try again here.

"Hey Guys, anyone got an idea on this?

If the euro is tipped to depreciate in the short/medium term, you know piigs, contagion, downward pressure on € etc, and a person wanted to transfer their euros into a "safer" currency for the duration, usually these foreign deposits are held at 0% interest by your bank (asaik). What's to stop a person achieving the exact same thing by buying that currency pair as a forex transaction and just keeping the trade indefinitely open until such time as they can convert back to euro (hopefully at a profit). The spreads from the forex brokers appear to be much better than what banks offer, and depending on the % differential between the currency pair in question there could possibly even be an interest differential in your favour. Eg, if you went short on EUR/NOK, you'd be holding Kronen @ 2% interest against just the 1% of the EUR.

...was just wondering ... :-) "

from the way this guy is talking , you can buy currency as an ETF , he does it with the euro this way , like others , im wondering if hes refering to the phenomenon of shorting or going long on currencies , if he is indeed talking about tracking a currency via an ETF , id be very interested in knowing the ETF code for the swiss franc or norwegian krona

As a US resident Im able to buy an Exchange Traded Fund that represents the value of the EURO (the ticker symbol is FXE) or most other currencies for that matter. I was wondering if that is available to you guys? And if so wouldn't it be better just to buy that ETF with your bank deposits?


above is a quote pasted from askaboutmoney

Become

irishh_bob wrote: »

from the way this guy is talking , you can buy currency as an ETF , he does it with the euro this way , like others , im wondering if hes refering to the phenomenon of shorting or going long on currencies , if he is indeed talking about tracking a currency via an ETF , id be very interested in knowing the ETF code for the swiss franc or norwegian krona

Yeah I saw that thread on AAM too, but I don't understand anything about ETF's and don't want to either I suppose ... you have to go through brokers don't you, pay commission or so much per trade etc? There are always a lot of people talking about them though and they appear quite popular.
I've been looking more and more at the possibility of trading the forex market perhaps a bit in the future, the online brokers are free and their profit from each trade is from the very narrow differential between buy & sell price, which is miniscule compared to what a bank will charge (as most people usually lose all their money forex trading I suppose they also cash in here too of course). I enquired at Keytrade and it's roughly half a percent of your total sum each time you exchange between currencies. A german bank I know of charge much less than that but you still hold the foreign currency at 0% interest which seems the norm in such cases.
I was hoping some forex trader might shed some light on buying foreign currencies on one of the forex online trader platforms. The way I understand it, in the case of buying NOK with EUR, you'd additionally be cashing in on the central bank interest differential of 1% between NOK & EUR (2% - 1%), be buying at a fraction of the cost you'd be paying through a bank, and have instant buy & sell capabilities online @ whichever rate you decide to opt for. Sounds like a win win situation if you want to diversify into a safe currency outside the euro (and also almost too good to be true), hence my wishes to get some forex guru to put me straight.

soddy1979

Well it's not win win if the Euro appreciates.

Let's say you want to hedge 100K. You could open up 10 short positions on EUR against 10 different currencies. At 100x leverage you will only need to deposit 1000 EUR to open the trade, although you should possibly have some more in there to avoid margin calls and having your trades closed. This would give you better diversification than a straight short EUR/Other Currency position.

But as you said, you want to hedge. You need to understand if the EUR does not collapse and instead appreciates, you're going to be out of pocket (possibly a lot more than your 1K deposit as well) I have a demo account with dbfx which I opened just to ensure I understood the dynamics of such a trade should I want to complete a hedge like this in the future, but at the moment I don't.

I feel happy enough about the Euro at the moment, however if there was serious discussion about going back to the punt I would reconsider.

Become

soddy1979 wrote: »

Well it's not win win if the Euro appreciates.

Let's say you want to hedge 100K. You could open up 10 short positions on EUR against 10 different currencies. At 100x leverage you will only need to deposit 1000 EUR to open the trade, although you should possibly have some more in there to avoid margin calls and having your trades closed. This would give you better diversification than a straight short EUR/Other Currency position.

But as you said, you want to hedge. You need to understand if the EUR does not collapse and instead appreciates, you're going to be out of pocket (possibly a lot more than your 1K deposit as well) I have a demo account with dbfx which I opened just to ensure I understood the dynamics of such a trade should I want to complete a hedge like this in the future, but at the moment I don't.

I feel happy enough about the Euro at the moment, however if there was serious discussion about going back to the punt I would reconsider.

Interesting idea about shorting the euro with multiple currency pairs and makes more sense with the greater diversifation I suppose .. I just had CHF & NOK in my mind the whole time.
Of course if the euro appreciates you'd lose out, but so would you just the same if you had bought the currency through a bank and held it with them in a foreign currency account. I also just opened a demo a/c with Oanda (no particular reason, just googled them), but am still at the ultra extreme newbie stage of just messing about with it and wouldn't trust myself trading with real money for a long time yet. However, if there were advantages to holding a foreign currency with a forex broker rather than with a bank, then it would be worth enquiring into further.
From what I think you' re saying, going the forex route of holding foreign currency would appear a quite legitimate option should the need ever arise. I'd have loads more questions to ask anyone who knows more on this topic though until I'd feel comfortable about it. Thank god for forums and the internet!

Become

tony8863 wrote: »

I trade currencies with ava and am very happy with them, they have very good customer service and can answer most of there questions. The are also offering great bonus on deposits at the moment. Link is below

http://www.avafx.com/?tag=17086

Thanks .. will check that out.

Wudyaquit

tony8863 wrote: »

I trade currencies with ava and am very happy with them, they have very good customer service and can answer most of there questions. The are also offering great bonus on deposits at the moment. Link is below

http://www.avafx.com/?tag=17086

You really are happy with them. 4 posts all schilling the same product - where do I sign?:rolleyes:

jeti24

I've been dealing with AVA FX for the last few months and I must say they are one of the worst companies to deal with!
I've had a pending withdrawal for the last 4 weeks, and it is still not rectified. They didn't even bother getting back to my queries. Had to send them 4 e-mails to 3 different persons and contact them via live chat, before I could get them to call me.

They also tried to sneak in some 'terms and conditions' and cancel my bonus, when I wanted to withdraw.

STAY AWAY FROM THEM!!!

As soon as I get my money back from them (if...) will be more than happy not to hear from them ever again!

Mr_Roger_Bongos

Wudyaquit wrote: »

You really are happy with them. 4 posts all schilling the same product - where do I sign?:rolleyes:

Has he been banned and the post removed?

Would be interested to know as I thought that avafx crowd were dodgy.