How to hedge currencies as a private investor?

[scorpioncapital]

I use ib and wondering how to hedge currencies.

Let's say I'm short euros versus USD and cad. Would I buy an option that allows me to buy euros (effectively hedging the short position)? But what product is this on ib? Or it's a futures contract. Also is there a maximum hedge period ? Can a small investor lock in like a one year , two year or longer hedge ?

 

 

[writser]

You can also just buy EURUSD and EURCAD spot?

[scorpioncapital]

Wouldn't this just close out the position? I am thinking of the carry trade that Ken fisher described in 2 Interviews yesterday where he describes major arbitrage in borrowing yen and euros at zero interest and buying assets or going long USD cash and pocketing free money yield of say 2 percent (or using it to invest). He does say you should hedge the currency changes so I'm trying to figure out how to do that.

[writser]

Yes it would close out the position. I thought you had some exposure from buying / selling stocks that you wanted to close out.

 

Honestly reading your posts I don't think you yourself even understand what you want to do.

[SHDL]

Forex futures are what I think you are looking for.  Type “EUR” in the IB monitor and select “Futures” and then pick a contract month. 

[DooDiligence]

Market top  ???

[frommi]

Forex futures are what I think you are looking for.  Type “EUR” in the IB monitor and select “Futures” and then pick a contract month.

 

Yep, thats the cheapest way to hedge. Hedging with direct currencies with IB costs more than the interest rate differential that is built into the future prices because you also have to pay the margin interest.

Example EUR/USD:

Cost to hedge for example 100.000 USD into EUR = Margin rate USD 3.88% - Interest paid on EUR = 0% = 3.88% cost to hedge per year.

With Futures:

Jun 2020 Contract Price (1.1575) / Current Spot (1.1255) = 2.8%.

 

With 1.000.000$ the difference is even larger, because the first 100.000€ are free to hold while you pay 0.675% to hold 1000000 EUR:

Currencies: 3.43% + 0.675% = 4.1% vs. 2.8%

[LC]

Wouldn't this just close out the position? I am thinking of the carry trade that Ken fisher described in 2 Interviews yesterday where he describes major arbitrage in borrowing yen and euros at zero interest and buying assets or going long USD cash and pocketing free money yield of say 2 percent (or using it to invest). He does say you should hedge the currency changes so I'm trying to figure out how to do that.

The hedge costs should have the IR arb priced in. The arbitrage opportunity is if the hedge cost is <2%. But yes, essentially you would buy a Euro or Yen FX future and match durations to your IR exposure.

[scorpioncapital]

Ok, because I'm a little thick... say I am short 100,000 cad and want to hedge it strengthening further versus the USD. What trade would I do? and in what quantity if I want 100% hedge or 50% hedge? Aren't futures time limited? Is there a constant hedge I can keep without having to roll over? But either way, not sure how the mechanics of it work.