- CFD trading
- CFD trading
- Markets
- Markets
- Products overview
- Forex
- Commodities
- Metals
- Indices
- Shares
- Cryptocurrencies
- Treasuries
- ETFs
- Accounts
- Accounts
- Compare our accounts
- Our spreads
- Funding & withdrawals
- Open CFD account
- Try free demo
- Platforms
- Platforms
- Platforms overview
- GO Markets trading app
- MetaTrader 4
- MetaTrader 5
- cTrader
- cTrader copy trading
- Mobile trading platforms
- GO WebTrader
- Premium trading tools
- Premium trading tools
- Tools overview
- VPS
- Genesis
- Share trading
- Share trading
- Invest in shares
- Invest in shares
- Trade ASX shares and ETFs
- Share trading platform
- Log into share trading
- Open share trading account
- Help centre
- Downloads
- Downloads
- iOS app
- Education
- Education
- Resources
- Resources
- News & analysis
- Education hub
- Economic calendar
- Earnings announcements
- Help & support
- Help & support
- About
- About
- About GO Markets
- Our awards
- Sponsorships
- Client support
- Client support
- Contact us
- FAQs
- Quick support
- Holiday trading hours
- Maintenance schedule
- Fraud and scam awareness
- Legal documents
Open Account
CFD trading
Trade CFDs on forex, commodities, indices, and more.
Open accountTo open a CFD trading account as a Company, Trust, or SMSF, apply here.
Share trading
Invest in shares and ETFs on the Australian share market.
Open accountOpen a Personal or Company/Trust/SMSF share trading account.
- CFD trading
- CFD trading
- Markets
- Markets
- Products overview
- Forex
- Commodities
- Metals
- Indices
- Shares
- Cryptocurrencies
- Treasuries
- ETFs
- Accounts
- Accounts
- Compare our accounts
- Our spreads
- Funding & withdrawals
- Open CFD account
- Try free demo
- Platforms
- Platforms
- Platforms overview
- GO Markets trading app
- MetaTrader 4
- MetaTrader 5
- cTrader
- cTrader copy trading
- Mobile trading platforms
- GO WebTrader
- Premium trading tools
- Premium trading tools
- Tools overview
- VPS
- Genesis
- Share trading
- Share trading
- Invest in shares
- Invest in shares
- Trade ASX shares and ETFs
- Share trading platform
- Log into share trading
- Open share trading account
- Help centre
- Downloads
- Downloads
- iOS app
- Education
- Education
- Resources
- Resources
- News & analysis
- Education hub
- Economic calendar
- Earnings announcements
- Help & support
- Help & support
- About
- About
- About GO Markets
- Our awards
- Sponsorships
- Client support
- Client support
- Contact us
- FAQs
- Quick support
- Holiday trading hours
- Maintenance schedule
- Fraud and scam awareness
- Legal documents
- Home
- News & analysis
- Articles
- Shares and Indices
- US share or option trader: Managing currency risk?
- Home
- News & analysis
- Articles
- Shares and Indices
- US share or option trader: Managing currency risk?
News & analysisNews & analysisMany traders utilise shares or options amongst their investment strategies either for income or capital growth.
One key factor that such traders may consider in their choice of specific markets to trade is liquidity, with a higher trading volume impacting positively on the ability to get in and out of trades at a fair price.Others may find the choice to trade specific companies or sectors not as well represented in their local market.
For many therefore, the breadth of choice and liquidity may make this market the preferred market to trade.
Like any type of trading, sustainable results require a depth of knowledge and commitment to trading an individual tried and tested system. This system should include in depth reference to risk management throughout.However, due to the choice of market, a trader can make regular profit and yet lose this (and potentially more) through the currency risks associated with trading in US dollars rather than, for example, their base currency of Australian dollars or GB pounds.
Holding a significant position in US shares or options means that many traders have exposure to positions in tens of thousands in USD.So what is the currency risk?
The reality is that profits can be ‘used up’, or losses can be compounded, by adverse currency movements.
The reason for this is simple. Let’s assume that your currency is AUD and it is transferred into USD for trading purposes. The exchange value when converted back to the original currency at some time in the future will be dependent not only on trading results but on the movement of AUD versus USD.
While your money is in your account in USD, weakness in AUD will mean a greater worth in AUD when converted back, whereas a lesser conversion worth will result if there is AUD strength while your money is sitting is USD.Let’s give an example…
See below a daily chart of AUD/USD for the last 3 years.
Note the price from the end of January 2018 at a level of 0.8134.
The price at Nov 2019 was at 0.6776 so a difference of 0.1358So, an investment to fund a trading account of AUD$30,000 would have equalled an original USD value of $24,402.
With the movement in the currency alone over this period (assuming no movement in share price) the value of the account when transferred back into AUD would have risen to $36,007.59 or in other words a 20.03% increase. So, in this case the underlying currency movement was of benefit.However, if this positive currency outcome is the case when there is USD strength (when your trading capital is in USD), with the same AUDUSD currency movement in the other direction, the loss could be 20.03%. This would mean that you would have had to profit by this 20.03% in your trades simply to breakeven. This WAS the case if you look at a chart from the beginning of Jan 2016 to Aug 2017.
More than this of course, if you have lost $6007.59 on a similar price move in the other direction, broke even on your trades during that period, so your equivalent AUD value is $23,992.41, your trading return would have to be now 25% profit to recover the original capital level simple because of currency movement.Bear in mind, of course we have chosen only a $30,000 example, some of you may have considerably more than this in the market (and so considerably more currency risk) than the example we have given.
Risk management of your hedge
Although you are entering a low margin requirement Forex position due to the leverage associated with Forex, we cannot understate the importance of a full understanding of the implications of this. Should the AUD move lower still (as we explained above in looking at what has happened since January 2018), the value of your hedge may move significantly.
If we look at using the analogy of an insurance policy in trying to explain the concept, the maximum risk is the initial “premium” paid in this case. However, with any Forex position there is obviously the risk of losing more than your original investment.
Additionally, you are trading your shares/options in a different account and hence there must be the ability to money manage between the two accounts.
Our team can guide you further on these important issues.One last thing…
Although we cannot advise when it is right for you, if at all, to put in a currency hedge, it is worthwhile raising the question about what the current AUDUSD chart is telling you now technically. Additionally, with the potential for further US rate cuts, and if you believe there will be some resolution to trade tariff wars between the US and China, both events have the potential to strengthen AUD (and so weaken your USD capital). If invested in USD based trading for some time you have benefitted, logically, it is not unreasonable to consider whether it is worth ‘locking’ some of this in.So, what can you do?
Your choices are twofold.
1. Allow your invested trading capital to be subjected to the risks associated with underlying currency movements or,
2. Hedge the currency risks with a non-expiring Forex position.If option “2” looks attractive, the reality is you can:
• Mitigate the risk through consideration of a Forex hedge.
• Attempt to optimise your hedge by timing its placement and exit i.e. use technical landmarks, to decide when to get in and out of a hedge. (Please note: a hedge is for insurance purpose and so although there may be merit in timing entry and exit, we are not suggesting you trade in and out of a hedge on a regular basis).Learn how to reduce the risk
We are happy not only to show you how but guide you step by step in how to set this up. There are a couple of practical issues you would need to have in place to manage this well but again we can go through these to enable you to make the right decision for you.
If you think this might be for you, then simply connect with us at mike.smith@gomarkets.com and we will arrange for one of our account team to discuss a currency hedge that may be a fit for you.Ready to start trading?
The information provided is of general nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information provided, you should consider whether the information is suitable for you and your personal circumstances and if necessary, seek appropriate professional advice. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Past performance is not an indication of future performance. Go Markets Pty Ltd, ABN 85 081 864 039, AFSL 254963 is a CFD issuer, and trading carries significant risks and is not suitable for everyone. You do not own or have any interest in the rights to the underlying assets. You should consider the appropriateness by reviewing our TMD, FSG, PDS and other CFD legal documents to ensure you understand the risks before you invest in CFDs. These documents are available here.
#Indice #Indices #IndicesTrading #IndexTrading #Shares #Stockmarket #StocksNext Article
Video: Matching trading strategy to an economic outlook
At the recent GO Markets Daryl Guppy seminar, we had a presentation from Daryl that covered both an insightful economic outlook as well as some of his technical trading approaches. During the seminar, a question was asked about how to match the two. i.e. if you have an economic idea how can you integrate this into your trading style. ...
December 6, 2019Read More >Previous Article
The World’s Biggest IPO: Saudi Aramco
What do we know about the state-owned oil giant - Saudi Aramco? World’s largest company World’s biggest state-owned oil and gas companie...
November 21, 2019Read More >Please share your location to continue.
Check our help guide for more info.