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Hedge with Base Currency

  • #1
  • First Post: May 3, 2007 12:28am May 3, 2007 12:28am
it is silly thing that count, it just poped up, and confuse me too...

eg :
we have account with yen as base currency
we put buy position in usd / jpy
and then when we take profit we convert it back to usd.....

if the yen is weaken, the position is giving us profit
if the yen get stronger, we get more money when we take our profit as $$$

there is still few broker that give jpy as base currency, so i think i'll save this arrangement for the future......
  • #2
  • May 6, 2007 10:51pm May 6, 2007 10:51pm
tis may good in 1:1 leverage since the equity it self is 1:1 our money.
better if the broker gives interest for our equity & high swap.
since it is hedge and based on swap, just keep the position balanced with the equity.

eg : now the usd/jpy 100 yen = 1$ and we put buy
if the usd/jpy goes to 1 yen = 1 usd we loss 99 in position, but the 1 yen left is still worth 1$

requirement : equity = price+ margin
  • #3
  • May 7, 2007 12:38am May 7, 2007 12:38am
I don' t understand what you're saying...

Why would you want to leverage of only 1:1? If the UJ rises to 200, you'd still have only $1...how would you take advantage of the fluctuation? The interest earned will do you no better than a regular interest account at 1:1 leverage.

This is the problem, the moment that you add leverage into the equation, you will STILL have losses...

Quoting Gwan
tis may good in 1:1 leverage since the equity it self is 1:1 our money.
better if the broker gives interest for our equity & high swap.
since it is hedge and based on swap, just keep the position balanced with the equity.

eg : now the usd/jpy 100 yen = 1$ and we put buy
if the usd/jpy goes to 1 yen = 1 usd we loss 99 in position, but the 1 yen left is still worth 1$

requirement : equity = price+ margin
  • #4
  • May 7, 2007 1:22am May 7, 2007 1:22am
by what you said, i assume that you have just agree that we can use base currency as hedge...... and that is the pin point of this thread....

application : so we can assume that instead we keep our account in no trade position (0 margin, 0 position), the is a position that is soo small, which hedge it self automatically.... in given arrangement.

Quoting mrmikal
I don' t understand what you're saying...

Why would you want to leverage of only 1:1? If the UJ rises to 200, you'd still have only $1...how would you take advantage of the fluctuation? The interest earned will do you no better than a regular interest account at 1:1 leverage.

This is the problem, the moment that you add leverage into the equation, you will STILL have losses...
should we use usd base currency, i wonder, should we open a saving with diffrent currency? it can give simmilar effect too
  • #5
  • Jun 25, 2007 4:51am Jun 25, 2007 4:51am
to put it simple....

Buy USD/ JPY , gain dailly swap
Buy Yen in the Bank to hedge it, save it (if somehow the bank allow us to open yen currency account)

walla, ( and thus replacing opening 2 broker and finding interest free account)
  • #6
  • Jun 25, 2007 9:56pm Jun 25, 2007 9:56pm
I like this idea. Very cunning, but since everyone will use higher leverage than 1:1 wouldn't only part of the position be coverd.

Quoting Gwan
to put it simple....

Buy USD/ JPY , gain dailly swap
Buy Yen in the Bank to hedge it, save it (if somehow the bank allow us to open yen currency account)

walla, ( and thus replacing opening 2 broker and finding interest free account)
  • #7
  • Jun 26, 2007 12:23pm Jun 26, 2007 12:23pm
VERY interesting idea!

One quick question though...

Since the bank account is at 1:1 leverage, wouldn't you only be able to risk the same amount in your trading account? For instance, if you're trading at 1:100 leverage, you would need $100 in the account for every $1 traded or at least $1 in the account for every $1 traded (at 1:1 leverage)?

If so, the carry trade really doesn't seem to make sense since you'd have to split your available margin in 1/2 (at least) and therefore you'd really only be getting 1/2 of the interest differential, which would be about the same as 0% risk investment like a CD.

Does this make sense? If so, what am I missing / misunderstanding?

Thanks!

Seavo
  • #8
  • Last Post: Edited 10:14am Jun 27, 2007 9:25am | Edited 10:14am
Quoting Seavo
VERY interesting idea!

One quick question though...

Since the bank account is at 1:1 leverage, wouldn't you only be able to risk the same amount in your trading account? For instance, if you're trading at 1:100 leverage, you would need $100 in the account for every $1 traded or at least $1 in the account for every $1 traded (at 1:1 leverage)?

If so, the carry trade really doesn't seem to make sense since you'd have to split your available margin in 1/2 (at least) and therefore you'd really only be getting 1/2 of the interest differential, which would be about the same as 0% risk investment like a CD.

Does this make sense? If so, what am I missing / misunderstanding?

Thanks!

Seavo
i think i give wrong example...... (sorry folks, the idea is not so good)
eg: 1$=120 yen......1 yen = $0.0083333
if 1 pip = $0.0083 =1 yen ( 1:100 )

basically only to hedge $0.0083 movement, we will need about $100 changed into yen
for $0.0083 per pip, will gives $0.013 swap per day = $4.628 per year, it is even lower than regular saving account......

so what if we reverse our tought?
.......hedge our saving with forex?
saving in USD and put AUD/USD buy? naah
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