Foreign currency hedging strategy in forex

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Speculative trading with currencies and CFDs carries a high degree of risk to capital. You may loss the whole deposit for short run. You should not start up trading with real money if you do not have a possibility to loose it. Before depositing funds consider carefully your financial knowledge and appetite for risk. UK passive investors came with a snag: What goes up can come down. But this was in large part due to big moves in the exchange rate. These shares are valued in foreign currencies.

As such currencies strengthened against the pound after the EU Referendum, the value of overseas shareholdings soared when translated back into sterling for British investors. These currency gains came on top of any moves in the underlying stock markets. Making money from Brexit at least takes the edge off shouting at Question Time. Also, this so-called currency risk is considered part and parcel of global investing in equities. I’ve explained before how it can diversify your portfolio.

When risk works in your favour, it can seem about as scary as a fairground ride. But how would you feel if the pound suddenly strengthened? A test of passive purity You might sensibly shrug and say you’d live with it. This is perhaps easier to do after receiving such an unexpected windfall.

Many professional investors and academics say long-term equity investors can probably ignore the swings and roundabouts of currencies and markets, anyway. For various reasons, they tend to work themselves out over time. Passive investors especially might baulk at being DIY currency speculators. Why do you know better than the market about the future of the pound?

What reason do you have to think it’s set to reverse and squash your overseas gains? Full-time professional traders clearly think otherwise. Monevator contributor Lars Kroijer would say the pound’s weakness reflects the best guesses of countless expert investors putting their money where their mouth is. You bought a global tracker fund to let this combined wisdom decide where your money was best invested. If you had no edge when you first opted to invest passively and globally, what’s changed? Business as usual is simple, practical, and it keeps the door to active meddling firmly closed.

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