I have a stock portfolio with U.S. online broker. Exchange rate movements have wiped out gains I have made.How can I protect against movements between £ and $ ?
Info on strategies or where to find would be helpful. Thanks
2006-12-18 10:26:05 · 4 answers · asked by Yeti 3 in Business & Finance ➔ Investing
Hedging only makes sense when you come to repatriate your gains. If you think the dollar will eventually strengthen again, then you should just sit tight on your US holdings (or use your currently strong GBP to increase them).
If you are hedging dividend payments you would have to be receiving a hell of a lot for hedging to be worthwhile. (It will cost to buy the hedge). You should also be aware that some hedging strategies might open you up to major currency risk if you don't know what you're doing.
If you are hedging capital value then you will have to sell the assets to realise the dollars which you then use to buy the GBP - so you will be left with fewer US denominated assets. So if you are liquidating your portfolio then a hedge is a good idea - otherwise concentrate on the fundamentals and let currency take care of itself.
2006-12-19 23:22:53 · answer #1 · answered by Jae 2 · 0⤊ 0⤋
Options.
You buy the right but not the obligation to buy or sell USD or GBP at the right price at the right time.
Today a GBP is 0.5134 USD.
Two things could happen in the future.
1) The USD keeps falling to 0.9134
2) The USD rises to 0.1134
I don't know what do you want but let's asume you want to protect against a fall.
You buy the right but not the obligation to buy GBP at $0.6134 USD in 2009
If by that time the price is $0.1134 you don't have to do anything.
If by that time the price is $0.9134 you are insured and the insurance company is forced to sell you at $0.6134 and they lose money.
Currency movements won't affect you (much) anymore.
You can buy currency insurance for any price.
If you buy high (or low) enough your risk is reduced to ZERO.
Top 5 Answerer.
2006-12-18 11:10:13 · answer #2 · answered by Anonymous · 0⤊ 1⤋
In your situation the trouble is pound shooting up against the dollar. Your best bet is to hedge in the forward forex market. You sell dollars forward when you buy stock and you will have adequate cover. Usually this is done by exporters and imprters but you will be OK too.
2006-12-19 03:58:43 · answer #3 · answered by Mathew C 5 · 0⤊ 0⤋
Beome a forex trader, you can go online and get a free practice account.
2006-12-18 10:35:39 · answer #4 · answered by tom_nearhood 3 · 0⤊ 0⤋