Account in USD or EUR

I live in Denmark in Europe. the problem is this: i have previous had my account in USD but when i tranfered it to a danish account the exchange rates have changed of course, which means i either lose or gain money when i do so.
but Denmark has made a political decision which keeps the exchange-rate of the euro to danish krone the same.

So should i have my account in EURO or USD?

Sounds like Euro is your best bet..

thats what i thought my self, but i saw a similar post. where someone said it would affect his riskmanagement, which i don't understand.

Changing the base currency of your account means you'll have to pay attention to how that might affect your tick value and P/L in a trade, yes:

If you put on 1 standard lot of EUR/USD, you're trading 100k Euros for XX USD (depending on the exchange rate at the time) and a 1 pip change in quote has a value of $10 USD difference.

So if your account is in USD, you'd know the dollar value of your stop and take profit levels pretty well (since XXX/USD pairs are based in USD.) However, if your account is in Euro, you'll need to convert what the position's pip value (in USD) converts back to your account balance in Euro.

For instance, say you'd want to risk 10 Euro per pip on a trade, then you'd need to put on ~1.30 standard lots of EUR/USD to do so..

It's not hard to figure out, and it's really no different than trading non-USD based pairs or crosses on a USD account (like USD/XXX, or XXX/XXX) when it comes to accounting for pip value.


If that rambling didn't explain it well enough.. check out this calculator that Oanda created:
http://fxtrade.oanda.com/analysis/profit-calculator/

Set the base currency of your account, select the desired pair, and set the units to "100000" or which ever size you want to base your trade on.

Then, set the closing price to be one pip different than the 'current' price it lists.

The profit calculation will be what the pip value in your account's base currency.

EDIT: Please ignore this post, I'm talking rubbish!

If you have an account in a currency other than your own, you should ideally have it in a currency with a positive carry charge.
EG.
If AUD$ has a positive carry charge compared to the Euro
Instead of opening an account with 10,000 Euros, open one in AUD$ with 10,000 Euros worth of AUD$
First trade is short 0.1 lot EURAUD (10,000 units)
This trade remains open throughout the life of the account and so hedges against the Euro weakening and you losing out when withdrawing.
The advantage with doing this is that you will receive the swap at each days close and so will make a very small profit even if you never place another trade.

It does affect risk management, but only makes a major impact on trades with very high SL and TP.
EG.
With an account in Euros
If you open a long position 1 lot on EURUSD at 1.3. SL at 0.65 and TP at 1.95
Although the pip movement is the same for SL and TP, if SL is hit you will lose 100,000 Euros, whereas if TP is hit, you will only win 33,000 Euros.
Mind you, if you opened the reverse position, you stand to gain 100,000 Euros for a 33,000 risk
This is an extreme example, but it can make a difference to your R:R if you consistantly aim for more than 500 pips
A long position on EU with 500 pip SL and TP would have a possible loss 10% larger than possible gain.

The moral of this story is that it is better to go short than long when the first named currency in a currency pair is your account currency

Christ no... :/

You just doubled the currency risk by doing that, not hedged it.

If you wanted to keep the account in AUD as opposed to Euro, you'd be paying a cost of carry to hedge it back to Euros (LONG EUR/AUD. As you would be selling the AUD in your account to buy Euros with the position, which is the only way to remove currency risk from the account, and it would be a position where you'd be paying interest.)

Huh?
I don't understand the term "hedge it back to Euros"
If withdrawing funds from a AUD$ account and converting it to Euros, it is a one-off transaction and one off transactions do not incur any swap, interest, rollover charges.
If I'm wrong, then I will happily admit it, but I don't think that I am wrong here.

Be prepared for some joyful confessions then

The OP was asking about USD vs EUR based accounts. He lives in Denmark, and the Danish Krone has a peg with the Euro (according to OP, I didn't look this up myself.)

In the past OP kept accounts in USD, but experienced currency risk first hand when transferring his funds into and back out of the USD based accounts.

OP wanted to know if keeping his account in Euro (which is pegged, so reduced or eliminated currency risk,) would impact his trading or position risk on the account (which he had heard could be a problem.)

You came in and suggested he hold the account in a currency that has a positive carry, presumably to earn interest off a deposit while it's sitting in your trading account. You suggested he accomplish this by putting on a hedge position within the account that has a swap/interest rate that pays the holder of the position, and along with that the position would nullify any change in the underlying currency rates to eliminate the risk between his trading account's currency base and his home country's currency.

This is where it doesn't work. Since your example of EUR/AUD, and holding a trading account in AUD, would take on an interest paying (not receiving) position should you want to hedge out currency risk:

Client transfers 10k in Euro into AUD.. thus he's sold his EUR to buy AUD. He's long AUD on the account since the account is in AUD, and he'll realize a gain or loss depending on the change in currency rate when he withdrawals his AUD account back into EUR (or Krone in OP's case,) in the future. So to hedge this currency risk, you would have to put on a long EUR/AUD spot FX transaction within the account that reflects the value of his account size.

It's long because he is selling his exposure to AUD to buy back the exposure in EUR and thus level out his foreign currency exposure entirely. Thus, no matter what the exchange rate does, his total capital will act as if he has the deposit he made in Euro (not AUD.)

A long position in EUR/AUD would also cost him to hold, not pay him, since he'd be short the higher interest rate currency, and long the lower interest rate currency. So he'd be paying for the hedge.

If OP did what you suggested, and shorted EUR/AUD, then while he would be paid in swap to hold the position, he'd have doubled his currency risk since he'd be buying additional AUD exposure atop of his account's balance by promising to pay back even more Euro. So a move against him in the currency markets would hurt on the position and when he converts his AUD back into Euro upon withdrawal.

Seems like my brain took a holiday today, as well as the market

I apologise, you are right Jack and I am wrong.
The principle is still correct, but my example was all back to front.
Sorry about that, I'm an idiot