Newbie Question

[joepubli]

Say, I am due to receive $250,000 on 1 April 2011. I quite like the current GBPUSD rate.
What is the best way to hedge so that in April 2011 I get the current rate?

Is it to open a spread bet?

Can I write an option to exchange the USD at the current rate and receive a premium? What would the premium be and can anyone suggest a broker to place this?

 

[Rhody Trader]

The easiest hedge from a retail trading perspective is to put on a GBP/USD long equivalent to the size of your inflow ($250,000/rate) in either the spot or futures market. The position would lose value if the rate worsened, but your $250k would be worth more pounds, so it's a wash (and vice versa). You may also make a small amount of positive interest carry on the position.

With a transaction that size, though, you may be best off going to a bank and entering into a forward contract.

 

[joepubli]

Thanks John. Is a forward contract going to better value than a spreadbet?

 

[Rhody Trader]

Spreadbetting is outside my area of knowledge. You'd have to compare margin requirements, rate spreads, and carry/rollover and whatever other costs might be involved.