FX Trading to hedge currency movement

FX Trading to hedge currency movement

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egomeister

Original Poster:

6,703 posts

264 months

Wednesday 11th March 2015
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A bit of background... I'm currently getting paid in Euros which is getting increasingly painful as every week I effectively take a pay cut in GBP due to the exchange rate movement. Hence I'd like to investigate making some kind of trade to offset the effect, but have no idea where to begin.

In my (non-financial) head it makes sense to me that I would put a trade on weekly in order to match my pay frequency (ie, I hedge each invoice/payment) and it would probably make most sense for me to put a trade on at low/no leverage as I'm only trying to balance the effects on my income. Effectively I would be short selling the Euro on a weekly basis, such that if it rises I get paid more but lose the trade, and if it continues to fall I lose on my pay, but win on the trade - either way my loss is minimised.

Beyond this I have no idea what products/providers would be the most appropriate for what I am trying to achieve. Can anyone with a bit of experience in trading give me some pointers to what I should be looking out for? Thanks!

R11ysf

1,936 posts

183 months

Thursday 12th March 2015
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IG Index spread betting account But I don't know if you would be able to do it small enough to hedge the individual invoices.
E.g. If your invoice on a weekly basis is for 1428 Euro. EUR GBP is currently (for sake of ease) at 70, so this is £1000. You would sell the Euro, but I think the minimum requirement is £1 a point on IG. So it the exchange rate rose to 71, your 1428 Euro invoice would now be worth £1014 but you would have lost £100 on the hedge. So you can basically only hedge about £7k a time on IG.

Some people may know of other platforms where you can do smaller amounts. Also you would have to take each one of the bets off as you transferred the money across each time.

Condi

17,219 posts

172 months

Thursday 12th March 2015
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You need a proper broker, rather than a spread betting account. Not sure how you would do it as an individual though? I expect you could do it through your bank - they all have access to the money markets, but if they offer client access as well I wouldnt know. We use ADM and Jeffries Bache at work, but thats big money stuff rather than a few quid here or there.

Also, you're only hedging on the day of trade. IE at the moment say its 1/1.40. If you hedge and it goes to 1/1.50 then you've protected that fall, but next month you're having to hedge at 1/1.50. All you are effectively hedging is the intra month movement, rather than the more structural movement I think you're after.

Be aware you'll get margin calls you have to fill daily. Protect £10k @ 1/1.40 and it rises to 1/1.30 and suddenly you have to find £550 by tomorrow. Obviously, you'll get it back as it were as you're Euros are worth more, but you've got to find the cash up front.


Pillskii

129 posts

153 months

Friday 13th March 2015
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My initial thought was take out a short unleveraged EUR/GBP ETF (exchange traded fund). But unless there is a way to get this on margin then you'd need to stick in a great deal of money into the ETF to hedge your pay.

Not sure how forward trading on the FX market works at an individual level, I'm sure a good broker could sort you out, but then costs might negate any benefits.