Author Topic: currency risk  (Read 12504 times)

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Offline Gary Stone

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Re: currency risk
« Reply #30 on: 08/09/2014, 09:09:59 AM »
Adam,

Correct application of  the simple rules that I use. Will be opening a position shortly.

Remember that these rules have not been researched to the same depth as the rest of SPA3 NASDAQ. I have advised that off-shore investors should do their own research for hedging the currency.

Regards
Gary
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Offline Gary Stone

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Re: currency risk
« Reply #31 on: 10/08/2015, 03:51:01 PM »
Be aware that the 'formal' timing system for hedging AUDUSD currency risk was released today as part of the latest upgrade to Beyond Charts.

Buy and sell signals now appear on the AUDUSD chart.

A buy signal is to go long the AUD against the USD and an exit signal is to close a long position in the AUD against the USD.

It is up to each individual investor to decide whether to hedge their USD exposure when the AUD strengthens.

The signals are displayed for SPA3 NASDAQ, SPA3 ASX and SPA3ETF users.

Regards
Gary
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Offline Ralph

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Re: currency risk
« Reply #32 on: 10/08/2015, 04:24:22 PM »
Hi Gary,
Had a look at the new signals for au/us looks great can we go to bc and find stats on the signals or can you please supply some basic stats.
I assume it is a trailing stop as per the ETF system.
Regards Ralph
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Offline Gary Stone

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Re: currency risk
« Reply #33 on: 10/08/2015, 05:10:51 PM »
Ralph,

You can use the stats in Beyond Charts.

Regards
Gary
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Offline Gary Stone

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Re: currency risk
« Reply #34 on: 10/08/2015, 05:45:04 PM »
Hedging the AUD against the USD

Introduction

Users of SPA3ETF and SPA3 NASDAQ whose home currency is the Australian dollar and that execute strategies using US listed ETFs (or stocks) will be faced with currency risk from time to time.  Risk will occur when the AUD strengthens against the USD when assets invested in USD will lose value in AUD terms.

The objective of hedging is to protect against large moves of the AUD strengthening against the USD when the investor has assets in USD. Investors may decide NOT to hedge for many reasons, including that they view their USD investments as a long term multi-year hedge against the majority of their assets being in AUD.

Share Wealth Systems has devised a hedging timing system that provides signals to buy the AUD against the USD when the AUDSUD exchange rate starts rising and then to sell when the AUDUSD exchange rate starts falling. This is best shown in a chart of the AUDUSD.

(See AUDUSD attachment)
 
Between the red and green signals an Australian investor’s USD portfolio is potentially gaining in value in AUD terms. And between the green and red signals an Australian investor’s USD portfolio is potentially declining in value in AUD terms.

The idea, therefore, is for an Australian domiciled investor to hedge one’s US listed ETF portfolio when a green entry signal occurs and to close the hedge when a red exit signal occurs.

How to hedge

There are a number of instruments that can be used to execute the currency hedge. This topic is frequently discussed on the Share Wealth Systems Forum so please use this resource to receive input and exchange ideas as different brokers and providers change their offerings.

Firstly, the investor will need access to a Forex broker. The different instruments that can be used include:
1.   Forex spot market. This is the most used instrument for short and intraday FX trading.
2.   FX Vanilla Options.
3.   FX Binary Options.
4.   FX Futures.
5.   CFD of FX Futures.

Not all FX providers offer all these instruments. And there may be more.

It is not the intention to explain all the advantages and disadvantages of each here as there is plenty of information on the internet.

The preferred instrument that will be used to hedge the Share Wealth Systems public portfolios is the CFD of FX Futures on the Saxo Capital Markets platform. The main reasons include:
•   The ability to hedge in units of a dollar rather in lots or contracts that are not that divisible, especially for hedging smaller portfolio values.
•   Once placed there is not Tom/Next overnight interest costs as are charged when FX Spot positions are held for more than a day.

The code for the CFD of FX Futures on the SCM platform is AUDUSDADmmmyy, where mmm = the month and yy = the year, for example, AUDUSDADSEP15. The date is when the FX Futures contract expires on which the CFD is based.

For example, if US$46,400 needed to be hedged when the investor determined that the AUD started strengthening to ensure that the AUD value of the $US46,400 did not decline in value as the AUD rose, then the following ticket could be used to execute an AUDUSD hedge trade.

The AUD would be bought at an AUDUSD exchange rate of 0.73135. If the AUDUSD then rose to 0.75 the value of theUS$46,400 would not decline in AUD value.

(See SAXO ticket attachment)
 
How much to hedge

The rule of thumb is to hedge the value of the portfolio that is exposed to USD.

If the account is unleveraged then this would be entire account value in USD that is in cash and in the market.

If the account is leveraged using CFDs then the amount to hedge would be the cash in the account and any open trade profit. Note the entire leveraged exposure should NOT be the value that is hedged.

Research Statistics

The table below shows the research stats from June 1991 to June 2015. These statistics do not include any margin or leverage, just absolute percentage moves.

Note that the average hold period for winning trades was 42.2 trading days which is 8.5 weeks. However hedge trades can last longer. Bear this in mind when selecting which Expiry date to use.

(See Stats attachment)
« Last Edit: 10/08/2015, 05:50:36 PM by Gary Stone »
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Offline Alan Kras

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Re: currency risk
« Reply #35 on: 12/08/2015, 08:53:50 PM »
Gary
are the signals for this system the same as you had for the Hedge Medium Term system before ? how do they differ?

alan

Offline Gary Stone

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Re: currency risk
« Reply #36 on: 12/08/2015, 10:55:46 PM »
Alan,

Totally different. The signals don't use the SIROC and Swing Charts. They use the ATR TS and Swing Charts.

Regards
Gary
« Last Edit: 12/08/2015, 11:01:21 PM by Gary Stone »
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Offline Alan Kras

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Re: currency risk
« Reply #37 on: 13/08/2015, 09:58:39 AM »
Hi
just spoke to IB, they no longer allow Aussie traders to do any currency trades, you can convert, just not do any trading/hedging. This has apparently been in effect for a couple of months.
Wow !