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Post by jabardolas on Mar 4, 2016 20:15:21 GMT
If you invest in a currency different from your country, how do you hedge the exchange risk?
Is it worth hedging the investment for just about 10 000 pounds or euros?
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bigfoot12
Member of DD Central
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Post by bigfoot12 on Mar 4, 2016 23:21:16 GMT
The easiest way would probably be to make the investment in a fund that is hedged on your behalf. It is unlikely that you will do better than that. Many ETFs have a version which is hedged to a particular currency.
Another way of not quite answering your question is to make the investment in a leveraged way, either CFD or Spread Bet. Imagine you wanted to buy the DAX but think in GBP. If you buy the DAX using spreadbet or CFD as a GBP amount you are not exposed the GBP/EUR. If you wanted to invest £10k into the DAX you would buy the index in £1 per point (the dax is currently ~9800). Such a bet wouldn't be directly impacted by GBP/EUR.
If the investment isn't listed or an index you could hedge the FX using a spreadbet or CFD. You don't mention time period. The funding of spreadbets can be expensive perhaps over 2.5% (as a annual rate) - something to think about if you plan to hold the hedge for a long time.
Another strategy would be to borrow the money for the investment in the foreign currency if that is open to you.
Most wholesale products wouldn't be open to an individual or in small size, (from distant memory minimum size in most futures contracts is about $1/4m. Many would be vs USD so you might need two to do a cross) and other products would have large fees for a small size.
I use the first three.
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Post by ablrateandy on Mar 6, 2016 20:46:14 GMT
Good advice from Bigfoot. Hedging is very expensive even for companies as they often want collateral, which earns no interest. If I was doing it is use a spread bet site.
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