Using Fx to hedge currency risk

esculapius1975

Junior member
27 0
I have an easy question to ask forex traders.

I want to open an account with interactive brokers in EUR (which is the currency i hold) and buy some US stocks in dollars.
I want to hedge the credit risk of the dollar stock position opening a long position on the pair EUR/USD and keep it for the lenght of my investment (1 year).
What would be the cost of this hedge?
Interactive brokers allow to use a 40:1 leverage and the ask bid spread is minimal.
For an equity asset of 160000 euros I will need 4000 euros to go long on the pair EUR/USD.

The costs I can see are
1) The ask/bid spread on the cross that seems to be very few pips on this pair
2) Rollover cost that should be the difference between the annual interest rate of USD - EUR and we are talking of 0.5-0.7% per annum.

There should not be any cost. Am I right or I am missing anything major?

Thanks

Giangi
 

esculapius1975

Junior member
27 0
I have an easy question to ask forex traders.

I want to open an account with interactive brokers in EUR (which is the currency i hold) and buy some US stocks in dollars.
I want to hedge the credit risk of the dollar stock position opening a long position on the pair EUR/USD and keep it for the lenght of my investment (1 year).
What would be the cost of this hedge?
Interactive brokers allow to use a 40:1 leverage and the ask bid spread is minimal.
For an equity asset of 160000 euros I will need 4000 euros to go long on the pair EUR/USD.

The costs I can see are
1) The ask/bid spread on the cross that seems to be very few pips on this pair
2) Rollover cost that should be the difference between the annual interest rate of USD - EUR and we are talking of 0.5-0.7% per annum.

There should not be any cost. Am I right or I am missing anything major?


Thanks

Giangi

Hi I was missing the broker fees. The whole cost of the hedge should not be more than 1% year. Am I right? Can anybody help please?
 

cold0904

Newbie
1 0
If i understand you correctly, you want to keep a longterm fx trade in IB. Then, you need to check the way they charge the interest rate, you should check its website. It is not 0.5 - 0.7 pct because of he way they charge differently the long/short balance. Also i guess u r aware assuming 1:40 will hold is too much.
 
 
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