How to hedge USD

[rayzzzz82]

Need serious help here!

I have been holding USD for my trading accounts. Have been losing thousands with the drop in USD against SGD since last couple of weeks.

Is there any way to hedge against fluctuation in USD? I have tried to sell USD/SGD for hedging but the overnight swap fees is again causing me money. I am also not able to apply for swap free account as i am not muslim. Is there any way to overcome this.

Any good advice will be appreciated. Thanks!

 

[hindsight]

Don't hold any USD, convert all of it to SGD and pay the negligible USD borrowing rates.

 

[rayzzzz82]

Unfortunately, I am unable to convert to SGD as I still require USD for trading.

Perhaps any kind soul would advise a more viable method of hedging USD.

 

[koja6049]

why u don't want to hold usd? it's a strong currency

 

[rayzzzz82]

I am holding USD because my trading accounts are USD denominated.

I am relying on trading as my income so even though I have made profit via trading any fluctuation of USD in relation to SGD will affect my income adversely.

For example, the drop of USD against SGD from 1.41 to 1.38 have caused me to lose thousands and affect my real income adversely.

Thus, I am looking for a way to mitigate this risk which I kinda have little control over.

 

[koja6049]

only forex trading can help you there.

u should hold usd for the long term, and only convert the necessary amount back for your expenses

 

[hindsight]

Unfortunately, I am unable to convert to SGD as I still require USD for trading.

Perhaps any kind soul would advise a more viable method of hedging USD.

You don't need USD to trade, you will just be charged a borrowing fee if you trade a USD denominated asset with an SGD balance in your trading account, thats exactly what I did when I was trading dollar denominated instruments with IB. Never had a USD balance of over 10k at any point and I could trade just fine.

 

[rayzzzz82]

I myself is trading forex and have considered shorting USD/SGD as hedging. However the negative of this method is that I have to pay the overnight swap fee which can amount to hundreds / thousands every monthly.

Holding USD for the long term might seem viable but we wont know for sure how will USD be performing in the long run (afterall USD can fall from 1.8 in 2002 to the current level of 1.38) so I wont want to subject myself to this kind of risk.

Afterall all my expense are in SGD and comparatively I will want to hedge against the unwanted currency risk which I have no control over.

If there is any one who know how to hedge, please advise the method (for eg, how to use option / forward / futures to hedge and what is the cost involved)

 

[rayzzzz82]

as reply to hindsight, my current broker do not have SGD as the trading currency so I can only hold in USD.

Nope I do not use IB and my trading capital are more than 10K USD.

 

[hindsight]

why u don't want to hold usd? it's a strong currency

Not vs the SGD. Its generally gone down vs the sgd in the last 30 years.

 

[hindsight]

as reply to hindsight, my current broker do not have SGD as the trading currency so I can only hold in USD.

What broker doesn't allow you to use SGD as a funding currency? Is it a bucket shop?

Nope I do not use IB and my trading capital are more than 10K USD.

I think you misunderstood me, I said I never held more than 10k usd in my account at any point, I didn't say my trades were only up to 10k usd, they were at times 50 times of that and I didn't experience any issue trading that size without the corresponding amt of dollars backing the trades.

 

[rayzzzz82]

I am currently using a FCA regulated STP broker in UK.

I cannot use IB as somehow its slippage is considerably high and my current strategy tilted more towards using MT4 as my platform compared to other platform.

 

[hindsight]

I myself is trading forex and have considered shorting USD/SGD as hedging. However the negative of this method is that I have to pay the overnight swap fee which can amount to hundreds / thousands every monthly.

Holding USD for the long term might seem viable but we wont know for sure how will USD be performing in the long run (afterall USD can fall from 1.8 in 2002 to the current level of 1.38) so I wont want to subject myself to this kind of risk.

Afterall all my expense are in SGD and comparatively I will want to hedge against the unwanted currency risk which I have no control over.

If there is any one who know how to hedge, please advise the method (for eg, how to use option / forward / futures to hedge and what is the cost involved)

Shorting USD/SGD is the only way, there is no other way to hedge it if you want to maintain a dollar balance, hedges cost money, they are never free.

 

[rayzzzz82]

I understand that USD/SGD is one way to hedge. But is there any way to avoid paying the overnight swap fee without being a muslim? The overnight swap fee kills my profit.

 

[OngHuatHuat]

I don't think he understands your concern.

I understand that USD/SGD is one way to hedge. But is there any way to avoid paying the overnight swap fee without being a muslim? The overnight swap fee kills my profit.

 

[limster]

Like others have said, borrow as much US$ as possible for trading. As long as you have S$ collateral there shouldn't be any problem.

if US$ depreciates, the amount you need to repay in S$ terms drop? But of course you are then exposed to US$ appreciating - but if US$ appreciates, the value of your US$ securities also increases.

 

[OngHuatHuat]

Usd borrowing rate is around 2 + %, doubt it is negligible though.
It is 10 k usd minimum for 500 k per year.

 

[rayzzzz82]

I think I didnt explain myself clear. I do not trade stocks so I dont really use IB as my trading platform to trade. My trading account is USD denominated, thus my fund are all in USD, not using SGD as collateral.

If USD appreciates, that would be good but it is something which I do not have control over. As trader, I would hope to get rid of something that is uncontrollable using my strategy.

Cost wise, I am using leverage but as much as possible, I am not using alot of leverage to keep my drawdown as low as possible and to an acceptable level. Hence the return vs capital monthly is not alot (around 2-5%) and if USD keep dropping vs SGD, this will erode my earning and my real income is almost negligible which I do not want to subject myself to.

 

[sg_investor]

Buy EWS? Since the usd/sgd fluctuation would manifest in the price of EWS?

I have a lame question, Assume STI doesnt change that day and no other influences, when SGD drops 1/2% against USD, will EWS price drop 1/2% also?

 

[Mecisteus]

There is no free lunch. Hedging comes at a cost.

1.42 -> 1.38 is 3% depreciation only. If you are trading and you can't even beat this rate, then better don't make risky trades. And 3% depreciation is assuming your exposure bought at the peak?