Post by jonboyp2p on Nov 17, 2017 9:53:37 GMT
As a UK investor I'm concerned with the currency risk I incur if I invest in overseas platforms like Mintos. With all the Brexit drama hanging over our heads, maybe EURGBP could move 20% again wiping out 2 years of profits. And I believe investors in Georgian loans have got bitten recently by declining GEL.
Does anyone hedge this risk?
I think it should be relatively easy and affordable to do with a leveraged short position on EURGBP at a retail forex trading site like Oanda.
The basic idea is:
send £100k to Mintos
send £10k to Oanda
Short the EURGBP at 10:1 leverage
If the Euro strengthens relative to GBP, then my position grows in value while my Oanda one shrinks; and vice versa if the Euro weakens.
If the Euro jumps by more than 10% before I have time to boost the position, I'll get margin called and the position closed. So I'm only insured for a 10% sudden adverse currency movement. If it drifts up gradually and I keep feeding the position more capital (possibly by repatriating my currency profit from Mintos) I stay as protected as I was initially, and overall I neither gain nor lose because of the currency movement.
The basic rule of monitoring the position is dead simple: make it match what I have at Mintos.
This does create a 10% cash drag - but that looks to me like a good price to pay.
I could also consider making it only a 5% position at 20:1 leverage as more than 5% currency sudden jumps are rare. It would require more frequent adjustment, but cause less cash drag.
Does anyone hedge this risk?
I think it should be relatively easy and affordable to do with a leveraged short position on EURGBP at a retail forex trading site like Oanda.
The basic idea is:
send £100k to Mintos
send £10k to Oanda
Short the EURGBP at 10:1 leverage
If the Euro strengthens relative to GBP, then my position grows in value while my Oanda one shrinks; and vice versa if the Euro weakens.
If the Euro jumps by more than 10% before I have time to boost the position, I'll get margin called and the position closed. So I'm only insured for a 10% sudden adverse currency movement. If it drifts up gradually and I keep feeding the position more capital (possibly by repatriating my currency profit from Mintos) I stay as protected as I was initially, and overall I neither gain nor lose because of the currency movement.
The basic rule of monitoring the position is dead simple: make it match what I have at Mintos.
This does create a 10% cash drag - but that looks to me like a good price to pay.
I could also consider making it only a 5% position at 20:1 leverage as more than 5% currency sudden jumps are rare. It would require more frequent adjustment, but cause less cash drag.
