shorting usd as 1:1 hedge against inflation

[trevor+]

Hey everyone, I hope this is in the correct category.

Say I am concerned my USD denominated account balance will decrease as a result of inflation over the next several years. Is there a way to hedge this risk away completely by shorting an equivilant amount of DX futures? Is it as simple as short 1 DX per $78,945 (current price x contract value) in my account?

Thanks a lot for the help,

Trev

 

[Martinghoul]

No. Yes.

 

[chinabean]

it's hard to hedge the risk away completely with futures as there is roll risk, (and this may not be a problem for you but) operational risk in terms of margin calls etc, plus futures trade in set notional amounts. But what you say in terms of using currency futures to hedge out your dollar risk is correct in terms of an approach to hedging. However, if you are say based in the UK then you should use cable futures rather than the dollar index which is the dollar versus a basket of currencies. At the end of the day, you only care about the currency that the account is in (dollars) and the currency that you will need to convert to.

Also, bearing in mind that currency futures only trade in set amounts, that means you'll have some unhedged dollar risk most likely. But that's not an issue unless you need to take some money out whilst your account is at an amount that is between lots.....if that makes any sense?