Author Topic: currency risk  (Read 12505 times)

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Offline Ralph

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currency risk
« on: 05/09/2013, 05:54:08 PM »
As part of the Nasdaq is their an official strategy with regard to hedging currency risk ie when to hedge and when not to ?
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Offline Gary Stone

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Re: currency risk
« Reply #1 on: 06/09/2013, 10:45:12 PM »
Ralph,

No there is not an 'official' strategy for hedging currency risk as part of the SPA3 NASDAQ for non-USA domiciled active investors.

In the eUGM yesterday and at the recent UGM's in Adelaide, Brisbane abd Sydney I did go through the basics of the strategy that I will use for hedging SWS's currency risk .

Regards
Gary
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Offline Gary Stone

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Re: currency risk
« Reply #2 on: 25/02/2014, 05:40:21 PM »
SPA3 NASDAQ users,

I've had quite a few questions via direct email after the SPA3 NASADQ Webinar I did on Tuesday 17th Feb. Whilst I do reply to each one individually I will also post the questions and answers on the SPA3 NASDAQ Forum for the benefit of all to learn.

Quote
what I hope you can further enlighten me is around currency hedging. I would appreciate:
a) if you could outline your reasoning and rationale of why you organised currency hedging on the SPA3 Nasdaq public portfolio in view of the fact that you are not likely to liquidate the entire portfolio any time soon?
b) Is this something everyone of us trading SPA3 Nasdaq should consider
c) I have no knowledge or understanding of the process and how to organise currency hedging even if I wanted to. Is there a website where you can direct me to so that I can learn about this subject matter


a)   I did answer this in the webinar Ė itís to do with tax. Itís because every year, tax has to be paid in A$ to the ATO as at 30 June profits INCLUDING exchange rate variation. So if the AUD falls to 30 June thereby US$ profits greater in A$, tax will have to be paid on the value of the A$ as at 30 June.

If,  after 30 June, the A$ strengthens then the profits that I will have to pay tax on from the previous tax period, which is typically many months later, will evaporate in exchange rate variation. So to ensure that I lock in as much of the profits gained by the $A fall I want to hedge the A$ when it strengthens.

I should also emphasise that if there are any hedging profits they are not added to the SPA3 NASDAQ Public Portfolio. There are traded via a separate hedging account (with Saxo) and are kept purely to assist paying tax on profits.

b)   Yes. And not only SPA3 NASDAQ trading, most investing off shore.

c)   The NASDAQ White Paper does cover this topic (in the Help Menu in GPS). Between the White Paper and the Webinar recording you should have all the info that you require. If you do a google search Iím sure there will be plenty of further information available.

Regards
Gary

« Last Edit: 25/02/2014, 05:46:27 PM by Gary Stone »
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Offline Yin Chee

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Re: currency risk
« Reply #3 on: 26/02/2014, 10:53:41 AM »
Hi Gary, thanks for the response.  Does one have to wait till the end of each financial year to reconcile one's ENTIRE portfolio all at the one time.  What I have been doing, and maybe not the right way to go about it, is that I created a Xcel spread.  Each time, I entered a trade, I made a note date and what the AUD:US rate was on that day and converted that invested capital back to AUD.  On the day I exited a trade, I repeated the same process ie. made a note of the day of exit and what AUD:US exchange rate was and converted profit/loss back to AUD.  What I am intending to do is that at the end of the financial year, I would just reconcile the AUD column for tax purposes. All the details are on the Xcel should the ATO wish to see them.  It seems like a lot of work but have started it since the beginning, it is relatively easy.
Appreciate your thoughts and is this an acceptable procedure.

Regards


Offline ivan

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Re: currency risk
« Reply #4 on: 26/02/2014, 09:23:09 PM »
Hi All,


I could be wrong here , but I have a suspicion the ATO actually declares an exchange rate for the financial year, some sort of average which gets applied to all your trades no matter what the actual exchange rate was at the time of the trade.

Now this might only be for companies, not individuals but I know I had this experience a couple of years ago whilst using a trust and I didn't really agree with it but I had to wear it.  Wondering if anyone else has had this experience ?

regards
Ivan


Offline Gary Stone

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Re: currency risk
« Reply #5 on: 07/03/2014, 03:43:37 PM »
To all USA equities active investors,

In the SPA3 NASDAQ Webinar a couple of weeks ago I covered the simple hedging 'system' that I use to hedge the AUD against the USD when the AUD strengthens, with a medium term horizon.

Overnight the criteria to open such a hedge were met.

The daily SIROC 34 18 is already positioned above it EMA13 and the AUDUSD Close of 90.88 cents was greater than the previous 5 day swing High of 90.79 cents, which occurred on 18th Feb.

Using Saxo Capital Markets, I bought the CFD of the June AUDUSD Futures Contract today to the value of the SPA3 NASDAQ Public Portfolio, which is US$86,088 as at close of 6th March.

I bought A$95,000 which was US$85,956.

I'll now leave this hedge trade open until an exit signal occurs which is when the daily SIROC 34 18 drops below its EMA13 or drops below 90 whichever occurs first.

Regards
Gary
« Last Edit: 29/04/2014, 11:15:25 AM by Gary Stone »
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Offline ivan

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Re: currency risk
« Reply #6 on: 10/03/2014, 01:51:30 PM »
Hi Gary,

I've opened a hedge last Friday as well, similar to yours, I know hedging portfolios WRT currency isn't SWS's "main game" but I think as more and more people start trading the NASDAQ (not sure of the numbers , but I'm sure there will be growing interest especially given the performance differences ) then I think it would be fair to say that people would appreciate if hedging could become a more integrated feature, a bit like the old hedging system for high market risk.

Until then, hedging position updates via the forum would be invaluable to us so we can ensure we're following the methodologists correctly.

We realise that you have mainly put the info 'out there' to prompt users of the need to hedge and to give an example of one way of doing it, but I think even a white paper detailing pros and cons of using different instruments , methodology etc would be greatly valued.  Of course I know you don't want it to develop into a FX trading system, so it should be simple in execution and understanding.

Just my thoughts !

regards
Ivan

Offline Gary Stone

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Re: currency risk
« Reply #7 on: 10/03/2014, 10:44:58 PM »
Ivan,

Your thoughts are spot on to the extent that this is exactly what I intend doing. However I need to do far more in depth research of the rules, the results of which will be a significant part of  the White Paper.

I have been reluctant to commit the AUD hedging strategy to being a formal part of SPA3 NASDAQ for this reason but with the completion of said White Paper it will become a formal part of the methodology for anybody using it outside of the USA.

I have also been reluctant to commit to a date for the same reason.

Regards
Gary
« Last Edit: 10/03/2014, 10:57:09 PM by Gary Stone »
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Offline Alan Kras

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Re: currency risk
« Reply #8 on: 11/03/2014, 11:09:21 AM »
I would appreciate the ability to record currency trades in trade master, to reflect the currency hedge

Offline BradG

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Re: currency risk
« Reply #9 on: 17/04/2014, 01:53:04 AM »
To all USA equities active investors,

In the SPA3 NASDAQ Webinar a couple of weeks ago I covered the simple hedging 'system' that I use to hedge the AUD against the USD when the AUD strengthens, with a medium term horizon.

Overnight the criteria to open such a hedge were met.

The daily SIROC 34 18 is already positioned above it EMA13 and the AUDUSD Close of 90.88 cents was greater than the previous 5 day swing High of 90.79 cents, which occurred on 18th Feb.

Using Saxo Capital Markets, I bought the CFD of the June AUDUSD Futures Contract today to the value of the SPA3 NASDAQ Public Portfolio, which is US$86,088 as at close of 6th March.

I bought A$95,000 which was US$85,956.

I'll now leave this hedge trade open until an exit signal occurs which is when the daily SIROC 34 18 drops below its EMA13 of drops below 90 whichever occurs first.

Regards
Gary



Hi Gary,
many thanks for providing this initial information for a hedging strategy.
Just wondering if signals can be provided for Fx pairs, possibly customisable for tuning the timing, as it looks
like what you are doing for the AUDUSD hedging could possibly also be applied as a long/short Fx trading system.
By any chance have you back tested the raw hedging signals?

I understand that SWS gave up developing a short-term Fx trading system, but perhaps a medium to long term
system that effectively trades the macro trends, could be viable. I'm sure something like this could be
developed. If SWS provided users with the SPA3 customisable signal generation for Fx pairs, then users could
do their own research ;-)

Also in the same vein, is it possible to get GPS to generate the SPA3 signals for all instruments, as currently it seems
SPA3 signals are only generated for NASDAQ and some ARCX instruments, but not for NYSE, Futures, Fx, etc.
(I'm using the SPA3 NASDAQ version)


Regards,
BradG.

« Last Edit: 17/04/2014, 01:55:51 AM by BradG »
We may learn wisdom by three methods:
first, by reflection, which is noblest;
second, by imitation, which is easiest;
and third by experience, which is the most bitter.
~ The Analects of Confucius.

Offline Gary Stone

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Re: currency risk
« Reply #10 on: 17/04/2014, 01:57:25 PM »
Brad,

I have back tested this strategy but not yet to the level that I typically do. When I get a free space of time I will do this and write it up. The intention is to make it a formal part of the SPA3 NASDAQ strategy for any user that it is not domiciled in the United States.

We'll see where this takes us in the next few months.

Quote
Also in the same vein, is it possible to get GPS to generate the SPA3 signals for all instruments, as currently it seems
SPA3 signals are only generated for NASDAQ and some ARCX instruments, but not for NYSE, Futures, Fx, etc.
(I'm using the SPA3 NASDAQ version)

At this stage we have decided not to pending further research in these areas.

Regards
Gary
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Offline BradG

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Re: currency risk
« Reply #11 on: 17/04/2014, 03:05:35 PM »
Gary,
is it possible to get an update to GPS that supports generation of SPA3 signals for all instruments including NYSE, Futures, Fx, Indices?
The idea is that users can pursue their own research on SPA3 signals if they are interested.
Thanks,
Brad.
We may learn wisdom by three methods:
first, by reflection, which is noblest;
second, by imitation, which is easiest;
and third by experience, which is the most bitter.
~ The Analects of Confucius.

Offline Gary Stone

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Re: currency risk
« Reply #12 on: 19/04/2014, 04:46:00 PM »
Brad,

We have already conducted the SPA3 Edge research on the NYSE. Indeed some of the findings regarding volatility of NYSE stocks have been published in the NASDAQ White Paper.

Our findings have highlighted to us that further research will need to be done regarding how the lower volatility nature of the NYSE should be managed from a Risk Management and Position Sizing stance. In our view, this will require detailed simulation research such as we did on the NASDAQ & ASX. There is a good chance that the Position Sizing will be different to that on the NASDAQ. We might even need to modify the Profit Stop targets. This will only be revealed through detailed research.

For this reason, and others, we made the decision to "turn off" the SPA3 signals on the NYSE stocks until such time as we are able to complete this research.

Regards
Gary
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Offline BradG

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Re: currency risk
« Reply #13 on: 20/04/2014, 01:10:34 AM »
Gary,
Does this imply that SWS is still planning to release other US market based, Futures or FX systems in the future and so don't want to enable
signals for these markets until these systems have been researched?
Regards,
Brad.

We may learn wisdom by three methods:
first, by reflection, which is noblest;
second, by imitation, which is easiest;
and third by experience, which is the most bitter.
~ The Analects of Confucius.

Offline Gary Stone

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Re: currency risk
« Reply #14 on: 20/04/2014, 10:03:59 PM »
Brad,

It does wrt the NYSE. But not FX and Futures.

One of the other issues with the SPA3 signals appearing on FX and Futures is that the SPA3 Index logic used to be displayed for these instruments. SPA3 Index logic is more delayed than SPA3 stock signal logic. Index logic signals are mostly more delayed than stock signals.

The main difference is that the SPA3 Index logic does not contain DBx and DSx signals.

Regards
Gary
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