Cost-effective ways to hedge against further USDCAD drops

[alanbrenton]

What would be some most cost-effective way to protect a portfolio of US securities from further drop in the USDCAD pair? I don't plan on converting the holdings to CAD soon.

Would bearish USD ETF or a call option on such be preferred? If none of these are ideal, what would be a good strategy?

Thanks.

[alanbrenton]

Anyone hedging their US portfolio against further USDCAD declines

[myster]

Convert an equivalent amount of cash from USD to CAD?

[tng11]

I borrow USD from my margin, so I don't actually convert any CAD to USD. When I sell the USD stocks, it just pays off my margin, so I don't lose on the FX conversion.

I was wondering if forward contracts would also work, but I don't trade that much to make this option worthwhile.

[alanbrenton]

Convert an equivalent amount of cash from USD to CAD?

And use CAD to purchase US securities?

I borrow USD from my margin, so I don't actually convert any CAD to USD. When I sell the USD stocks, it just pays off my margin, so I don't lose on the FX conversion.

I was wondering if forward contracts would also work, but I don't trade that much to make this option worthwhile.

How long do forward contracts go for? I think it will only be IB to offer this. My closest bet would be using xe.com's forward contract -- I plan on buying if USDCAD pair depreciates to parity or beyond.

[evoviii]

When you say hedge, are you hedging your investment portfolio? currency holdings?

You can utilize forex trading or options on currency ETF's. It really depends on how you feel and the size of the hedge, because the cost of hedging may outweigh the benefits especially with smaller portfolios.

[alanbrenton]

When you say hedge, are you hedging your investment portfolio? currency holdings?

You can utilize forex trading or options on currency ETF's. It really depends on how you feel and the size of the hedge, because the cost of hedging may outweigh the benefits especially with smaller portfolios.

I meant hedging an investment portfolio - not more than $100k. Are options on futures contracts available through our beloved Canadian brokers? How would these differ from options on currency ETF's? Because option bets are leveraged, I guess it will have to do for my small portfolio.

I have a conviction that we won't be at parity for long (if we ever do reach that point again). What kind of trades should I placing then? Do I wait for the pair to reach parity or can I start a position now to slow the decline?

[Ferris Bueller]

My thought is that forward and futures contracts are not feasible for this purpose, but I haven't really looked at the spectrum of choices available. Assuming you are dealing with a currency pair USD and CAD, options on currency futures may suit your purpose - but are options on CAD futures available, and if so, how liquid is the market?

[evoviii]

I meant hedging an investment portfolio - not more than $100k. Are options on futures contracts available through our beloved Canadian brokers? How would these differ from options on currency ETF's? Because option bets are leveraged, I guess it will have to do for my small portfolio.

I have a conviction that we won't be at parity for long (if we ever do reach that point again). What kind of trades should I placing then? Do I wait for the pair to reach parity or can I start a position now to slow the decline?

options is the simplest given that most accounts have that option already. Since it's you can control the leverage and time via date and the strike price.

Many brokers offer forex trading where they allow you large leverage 10:1, 100:1, 1000:1. Thereby allowing you to hedge 100k portfolio cost efficiently provided you don't get margin called.

Futures, as far as I know would be done via IB or iTrade but I'm not as familiar with that. This would be more cost efficient, as this is what the institutional traders use.