Hedging Question (Not Trading Related) | Forex Factory

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Hedging Question (Not Trading Related)

  • #1
  • First Post: Edited 7:56am Oct 23, 2007 7:04am | Edited 7:56am
Hello,

I am a relative newbie to forex and learning so much from this site. I am limited mostly to stocks and have done quite well for myself. Learning to trade is my primary business as it stands right now (whilst being a student). However, I have a question which I hope someone could give me a little advice. It is not a trade but just a little advice in the general arena.

If a business has dealings overseas and payments will be made mostly in USD. With the position of the AUD as it stands currently I may be exposed to the fluctuations as these deals take a while to process. Many banks are able to hedge the position for me but is it feasible for someone like myself to hedge it say by shorting the AUD? Amount would be around the 200K mark for each deal?

Thanks in advance
  • #2
  • Oct 23, 2007 9:48am Oct 23, 2007 9:48am
Quoting Eros
Hello,

I am a relative newbie to forex and learning so much from this site. I am limited mostly to stocks and have done quite well for myself. Learning to trade is my primary business as it stands right now (whilst being a student). However, I have a question which I hope someone could give me a little advice. It is not a trade but just a little advice in the general arena.

If a business has dealings overseas and payments will be made mostly in USD. With the position of the AUD as it stands currently I may be exposed to the fluctuations as these deals take a while to process. Many banks are able to hedge the position for me but is it feasible for someone like myself to hedge it say by shorting the AUD? Amount would be around the 200K mark for each deal?

Thanks in advance
yes it would be viable - an in fact is the major use of the foreign exchange market.

If you are not concerned with making extra money than the deal you have made then you could open a brokerage account and deal on margin. a broker account of say $4000 leveraged should be enough depending on the length of the deal process. if it was not enough you could always add some more to the pot as time passes.

do remember though that there is also a cost to the deal of a few pips and swap intrest to be calculated +ve or -ve

I don't know how to calculate the right amount for you but someone here will have that knowledge if you furnish them with more details.

if the dollar increased in value during the length of your deal then you would win on the broker account but lose on the deal making an equal deal at conclusion. If you could explain a little more what the deal is and what is your base currency then i'm sure someone will have a stab at it for you.

hope this helps.
https://linktr.ee/Soultrader
  • #3
  • Oct 23, 2007 10:32am Oct 23, 2007 10:32am
Quoting soultrader
yes it would be viable - an in fact is the major use of the foreign exchange market.

If you are not concerned with making extra money than the deal you have made then you could open a brokerage account and deal on margin. a broker account of say $4000 leveraged should be enough depending on the length of the deal process. if it was not enough you could always add some more to the pot as time passes.

do remember though that there is also a cost to the deal of a few pips and swap intrest to be calculated +ve or -ve

I don't know how to calculate the right amount for you but someone here will have that knowledge if you furnish them with more details.

if the dollar increased in value during the length of your deal then you would win on the broker account but lose on the deal making an equal deal at conclusion. If you could explain a little more what the deal is and what is your base currency then i'm sure someone will have a stab at it for you.

hope this helps.
Thanks so much for the reply, I really appreciate it.

I completely understand the concept of hedging and how the forex market works (well sort of, enough to know this). I am learning this market as fast as I can, paper trading on MT4. This is an unexpected and unrelated venture. My question arises because I am yet to actually place a trade and these markets operate a little differently to what I am use too. I account for the potential pip movements in my cost, and thus would have sufficient capital in the account to hold the postion. But what is the swap interest? My base is AUD.

Thanks again.
  • #4
  • Oct 23, 2007 11:22am Oct 23, 2007 11:22am
Put simply, its the difference between the federal funds rate in one country and that in another. So right now, AUD lending rate is 6.5%. The U.S. rate is currently 4.75%. That makes a difference of 1.75% that will either be charged to you or paid to you, depending on whether you are buying or selling the currency pair. It is paid / charged daily. You can also see this charge on your MT4 platform as "Swap" on the trade tab of your trades. If you day trade, then there is no swap since you close your positions on the same day you open them.

Here also is a chart of all the major countries' rates...
http://www.fxstreet.com/fundamental/...t-rates-table/
Disregard all prognostications.
  • #5
  • Last Post: Oct 23, 2007 11:30am Oct 23, 2007 11:30am
Right. For example, AUD base who pays the swap interest if short or long?

Would there be any difference in going short AUD or long USD if my base is AUD.

Also, any idea of how to calculate position size to hedge against approx 200k AUD?
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