Dear fellow traders, could you please give me some advice on what is the best/cheapest way to hedge EUR and USD in the following scenario: I borrow 100,000 EUR from an EU bank and change it to USD => I get 110,000 USD (assumed EUR/USD 1.1000) I invest these 110,000 for one year and get back 121,000 USD 365 days later (assumed 1 year term deposit with 10% interest). I need to convert 121,000 USD into EUR and pay back 102,000 EUR to the bank (assume initial loan 100,000 EUR plus 2% interest) Depending on the EUR/USD price in one year more, I might end up with a profit or a loss, because the currency can move much more (against me) than I'd profit from the interest of my investment. So I need to hedge it. What do you think is the best/easiest way? - Options: I think they are too expensive? - Spot forex / futures: Cheap costs, but I'd need to leave 30%-50% of my investment sum with a forex broker, because I need enough margin in case the EUR/USD moves a lot. So I'd need to give up on 30%-50% of my profit (plus swap fees). What are your ideas? Thank you much and kind regards
Buy out of the money 6E put options perhaps? Admittedly, I'm not familiar with how margins work on futures options, but I suspect they will end up being your cheapest hedge
To hedge EUR and USD you would buy both. To hedge EUR you would buy EUR. To hedge USD you would buy USD.
I usually used binary options trading as a main tool to hedge against my forex trades and i suggest forex traders to try it. It is quite easier than forex trading and rewarding too.
Forward FX contracts but they will cost you the annual rate of interest...also where are you gonna earn 10% on USD? Yo are basically doing a carry trade and asking how to hedge it.
I guess binary options trading has introduced a new approach to trade options, traders can trade on any underlying asset with a specific expiry of contract and each winning trades can bring 80 - 88 % returns.
1y fwd EURUSD, you give up arnd 155 fwd points (mid)... That's 1.35%, which you should be able to afford easily, given you're earning 10%. That's the most direct, risk-free way. You can do this, for instance, by trading the EUR futures. Even the less liquid distant contracts will only cost you a fraction of a percent more (e.g. M7 is 1.15925 offered at the moment, which is 1.59% vs 1.35% mid). And yes, you'll have to post margin and all that jazz, but that's life, innit?