Hedge against currency risk

[knm]

Hello,

I have stock positions in USD, but my local currency is CZK. I would like to hedge against currency risk. I have Interactive brokers account.

I have Shorted 10.000 USD/CZK to protect my stock positions against currency changes. The leverage on CZK is 1:20, on USD 1:40.

In my console I see position -10.000USD/CZK. When shorting you pay interest from the borrowed money. I would like to know if I´m paying interest from the 10.000USD or only the margin (10.000/20 or 10.000/40 don´t know which leverage apply)? I hope correct answer is: Only from the margin?

If so I would like to know how big the margin on forex position is. However in my console I see only total maintenance and initial margin (I have also other positions). Does IB provide some detail of what is total margin made of?

Great trading for everyone.
Martin

 

[EnlightenedJoe]

The interest is charged on the margin. If the price moves against you, the margin requirement increases and so does the interest charge.

The margin requirement is fixed for each instrument. Interest is charged against that. Changing your leverage has no effect on the charge.

 

[progix]

Changing your leverage has no effect on the charge.

Leverage is the most powerful thing which i guess can change the traders possibility to earn more by investing less however i think high leverage can also claim higher damages as well so the new traders being unaware of the market conditions should keep the leverage low in start in order to avoid blowing up the account.

 

[EnlightenedJoe]

Leverage is the most powerful thing which i guess can change the traders possibility to earn more by investing less however i think high leverage can also claim higher damages as well so the new traders being unaware of the market conditions should keep the leverage low in start in order to avoid blowing up the account.

My youngest niece, I call her little mouse, doesn't like strawberry flavoured ice cream. I don't know why.

 

[gerryg]

Hello,

I have stock positions in USD, but my local currency is CZK. I would like to hedge against currency risk. I have Interactive brokers account.

I have Shorted 10.000 USD/CZK to protect my stock positions against currency changes. The leverage on CZK is 1:20, on USD 1:40.

In my console I see position -10.000USD/CZK. When shorting you pay interest from the borrowed money. I would like to know if I´m paying interest from the 10.000USD or only the margin (10.000/20 or 10.000/40 don´t know which leverage apply)? I hope correct answer is: Only from the margin?

If so I would like to know how big the margin on forex position is. However in my console I see only total maintenance and initial margin (I have also other positions). Does IB provide some detail of what is total margin made of?

Great trading for everyone.
Martin

You pay for the amount you borrowed. Otherwise this would be interest rate*1/365+Libor rate * your deposit. Would be extremely small amount.

 

[knm]

Hello guys,

I realized the position I was talking above.

Namely I shorted -22.500 USD.CZK at price around 21.5USD/CZK (total circa 500.000CZK).

However in my November statement I see I paid 1694CZK as a USD Debit Interest just in November. That means (1694*12)/500.000 = 4%/yr for this position! Interest rate of Czech Koruna is 0.5%, US dollar is 1.5%, therefore I should be paying only 1%/yr interest. I have only one other small position on my account (1k USD position), so it should not be problem in other positions.

Does anyone have explanation?

Great trading for everyone
Martin

 

[Dagerban]

Certainly, there are some ways to save yourself from a currency risk but still, it's hard to guarantee something.

 

[Jamon]

Hello guys,

I realized the position I was talking above.

Namely I shorted -22.500 USD.CZK at price around 21.5USD/CZK (total circa 500.000CZK).

However in my November statement I see I paid 1694CZK as a USD Debit Interest just in November. That means (1694*12)/500.000 = 4%/yr for this position! Interest rate of Czech Koruna is 0.5%, US dollar is 1.5%, therefore I should be paying only 1%/yr interest. I have only one other small position on my account (1k USD position), so it should not be problem in other positions.

Does anyone have explanation?

Great trading for everyone
Martin

Did you find a way to do this smart?
I have a similar situation and I pay interest on the whole shorted position (in your case above, paying interest on the whole 500.000CZK)
Thanks