There's a lot of talk here of a potential sterling crisis. I don't know how likely this is, but I'd imagine that since we import most of our goods, a fall in sterling would be inflationary, demand further interest rate rises and push the housing market down further.
How are other HPCers mitigating currency risk? I've put some money in gold and foreign shares, but they are both quite volatile and I'm not a huge risk-taker. Bonds seem a bit risky in an era of rising international interest rates. I'd like to save some cash in other currencies (Euros/dollars/Swiss francs etc). Does anyone know of practical ways to do this whilst still gaining interest?
I could imaging an Exchange Traded Fund that puts cash into a weighted basket of major currencies, and pays a modest interest rate on the amount invested. It would be great for reducing currency risk, and could even be sheltered under a self-select ISA. Is there such a thing?
Full Version: How To Reduce Currency Risk?
diversifying reduces risk, a little bit of everything (including property)
It's not really reducing currency risk, but I've considered taking out a short position against the DJ30 with a CFD denominated in USD. I intend to wait until after the next interest announcement before taking a closer look.
My aim would be to profit from any slide in sterling relative to the USD and/or any fall in the DJ (possibly both).
Although a healthy margin would be required I don't see much upside in either the USD or DJ and the interest on the short should cover most of the cost of market activity allowing a cheap long term position (if required).
Any thoughts welcome.
My aim would be to profit from any slide in sterling relative to the USD and/or any fall in the DJ (possibly both).
Although a healthy margin would be required I don't see much upside in either the USD or DJ and the interest on the short should cover most of the cost of market activity allowing a cheap long term position (if required).
Any thoughts welcome.
I too worry about having all my eggs in the Sterling basket, particularly as I am incredibly bearish about the prospects for the 'miracle economy'.
To that end I diversified somewhat (initially 10%, now about 25% in to gold - via bullionvault and a very small amount of physical).
I have been considering currency diversification too but it doesn't seem quite so straightforward.
One option would be to physically convert some money in to foreign currency, which seems to have 3 possible routes:
1. do it in paper at a bureau de change (cons: need somewhere secure to store the cash, rip-off commission/fees, and it earns no interest while 'stuffed in the matress')
2. Open a multi-currency account at a British Bank (cons: hassle in opening account, possible annual fees, low rates of interest on the currency you hold in, probably still high conversion fees, not sure how many currencies you can hold in - euros i guess would be a given, but what about say swiss francs/yen?
3. Open a foreign bank account - e.g. at a swiss bank (cons: even more hassle and possible costly start up and conversion fees, only gives diversification in to one currency, tax implications of holding money off-shore / risk of looking like you've got something to hide!)
Basically none of these options scream out as massively attractive to me.
What I am now considering is using a spread firm to essentially bet to hedge the risk of sterling depreciating.
So, simply I would short Sterling against a basket of currencies. e.g. sell GBP/CHF, sell GBP/JPY
I still need to do research in to it to be certain of exactly what it is I am betting on. I am not a novice to spread betting so I am well aware of the risks and neccessary money management involved but I am a novice to currency/financial markets so I need to get my head around them.
The advantages to the spread betting approach seem to be:
1. The only fee you are paying is the bid-offer spread, which will I reckon work out far smaller than the costs involved in the methods above. I still need to do some calculations on that to convince myself though.
2. There are no tax implications whatsoever, any 'profit' you make (i.e. in sterling terms) is completely income tax and capital gains tax free. I simply do not know the tax implications of other forms of currency speculation and knowing for sure that spread betting is tax free is comforting.
3. Spread betting is done to some extent on margin, so unlike physically transferring all your money in to a foreign currency you can hold on to most of it in sterling - thus earning interest on it at the higher sterling rate.
This is still all a work in progress for me though and I am defintiely not ready yet, nor even sure if I ever will be, to take the plunge in to currency diversification. I need to do a lot more quantitative analysis on the actual costs and relative merits of different approaches in a variety of scenarios..
To that end I diversified somewhat (initially 10%, now about 25% in to gold - via bullionvault and a very small amount of physical).
I have been considering currency diversification too but it doesn't seem quite so straightforward.
One option would be to physically convert some money in to foreign currency, which seems to have 3 possible routes:
1. do it in paper at a bureau de change (cons: need somewhere secure to store the cash, rip-off commission/fees, and it earns no interest while 'stuffed in the matress')
2. Open a multi-currency account at a British Bank (cons: hassle in opening account, possible annual fees, low rates of interest on the currency you hold in, probably still high conversion fees, not sure how many currencies you can hold in - euros i guess would be a given, but what about say swiss francs/yen?
3. Open a foreign bank account - e.g. at a swiss bank (cons: even more hassle and possible costly start up and conversion fees, only gives diversification in to one currency, tax implications of holding money off-shore / risk of looking like you've got something to hide!)
Basically none of these options scream out as massively attractive to me.
What I am now considering is using a spread firm to essentially bet to hedge the risk of sterling depreciating.
So, simply I would short Sterling against a basket of currencies. e.g. sell GBP/CHF, sell GBP/JPY
I still need to do research in to it to be certain of exactly what it is I am betting on. I am not a novice to spread betting so I am well aware of the risks and neccessary money management involved but I am a novice to currency/financial markets so I need to get my head around them.
The advantages to the spread betting approach seem to be:
1. The only fee you are paying is the bid-offer spread, which will I reckon work out far smaller than the costs involved in the methods above. I still need to do some calculations on that to convince myself though.
2. There are no tax implications whatsoever, any 'profit' you make (i.e. in sterling terms) is completely income tax and capital gains tax free. I simply do not know the tax implications of other forms of currency speculation and knowing for sure that spread betting is tax free is comforting.
3. Spread betting is done to some extent on margin, so unlike physically transferring all your money in to a foreign currency you can hold on to most of it in sterling - thus earning interest on it at the higher sterling rate.
This is still all a work in progress for me though and I am defintiely not ready yet, nor even sure if I ever will be, to take the plunge in to currency diversification. I need to do a lot more quantitative analysis on the actual costs and relative merits of different approaches in a variety of scenarios..
[quote name='the_skeptic' date='Sep 26 2007, 11:54 AM' post='788250']
I too worry about having all my eggs in the Sterling basket, particularly as I am incredibly bearish about the prospects for the 'miracle economy'.
To that end I diversified somewhat (initially 10%, now about 25% in to gold - via bullionvault and a very small amount of physical).
I have been considering currency diversification too but it doesn't seem quite so straightforward.
One option would be to physically convert some money in to foreign currency, which seems to have 3 possible routes:
1. do it in paper at a bureau de change (cons: need somewhere secure to store the cash, rip-off commission/fees, and it earns no interest while 'stuffed in the matress')
2. Open a multi-currency account at a British Bank (cons: hassle in opening account, possible annual fees, low rates of interest on the currency you hold in, probably still high conversion fees, not sure how many currencies you can hold in - euros i guess would be a given, but what about say swiss francs/yen?
3. Open a foreign bank account - e.g. at a swiss bank (cons: even more hassle and possible costly start up and conversion fees, only gives diversification in to one currency, tax implications of holding money off-shore / risk of looking like you've got something to hide!)
Another option is to open an account with a currency trader.
I know one that will start you off for a small fee and initial amount.
Then its up to you how much you put in The usual amount is $10000 but even that is negotiable.
Returns are around 17% per month by the way. The account is held overseas. (So no tax) unless you repatriate the money. Stick to below the Capital Gains return depending on how much you earn.
Also Everthought about putting things in a trust for your old age etc.
I too worry about having all my eggs in the Sterling basket, particularly as I am incredibly bearish about the prospects for the 'miracle economy'.
To that end I diversified somewhat (initially 10%, now about 25% in to gold - via bullionvault and a very small amount of physical).
I have been considering currency diversification too but it doesn't seem quite so straightforward.
One option would be to physically convert some money in to foreign currency, which seems to have 3 possible routes:
1. do it in paper at a bureau de change (cons: need somewhere secure to store the cash, rip-off commission/fees, and it earns no interest while 'stuffed in the matress')
2. Open a multi-currency account at a British Bank (cons: hassle in opening account, possible annual fees, low rates of interest on the currency you hold in, probably still high conversion fees, not sure how many currencies you can hold in - euros i guess would be a given, but what about say swiss francs/yen?
3. Open a foreign bank account - e.g. at a swiss bank (cons: even more hassle and possible costly start up and conversion fees, only gives diversification in to one currency, tax implications of holding money off-shore / risk of looking like you've got something to hide!)
Another option is to open an account with a currency trader.
I know one that will start you off for a small fee and initial amount.
Then its up to you how much you put in The usual amount is $10000 but even that is negotiable.
Returns are around 17% per month by the way. The account is held overseas. (So no tax) unless you repatriate the money. Stick to below the Capital Gains return depending on how much you earn.
Also Everthought about putting things in a trust for your old age etc.
QUOTE (DrBob @ May 29 2007, 12:01 PM) 
There's a lot of talk here of a potential sterling crisis. I don't know how likely this is, but I'd imagine that since we import most of our goods, a fall in sterling would be inflationary, demand further interest rate rises and push the housing market down further.
How are other HPCers mitigating currency risk? I've put some money in gold and foreign shares, but they are both quite volatile and I'm not a huge risk-taker. Bonds seem a bit risky in an era of rising international interest rates. I'd like to save some cash in other currencies (Euros/dollars/Swiss francs etc). Does anyone know of practical ways to do this whilst still gaining interest?
I could imaging an Exchange Traded Fund that puts cash into a weighted basket of major currencies, and pays a modest interest rate on the amount invested. It would be great for reducing currency risk, and could even be sheltered under a self-select ISA. Is there such a thing?
How are other HPCers mitigating currency risk? I've put some money in gold and foreign shares, but they are both quite volatile and I'm not a huge risk-taker. Bonds seem a bit risky in an era of rising international interest rates. I'd like to save some cash in other currencies (Euros/dollars/Swiss francs etc). Does anyone know of practical ways to do this whilst still gaining interest?
I could imaging an Exchange Traded Fund that puts cash into a weighted basket of major currencies, and pays a modest interest rate on the amount invested. It would be great for reducing currency risk, and could even be sheltered under a self-select ISA. Is there such a thing?
There are US listed ETFs which also provide a suprisingly good yield.
For example:
CurrencyShares Australian Dollar Trust
PowerShares DB G10 Currency Harvest Fund
CurrencyShares British Pound Sterling Trust
iPath GBP/USD Exchange Rate ETN
CurrencyShares Canadian Dollar Trust
iPath EUR/USD Exchange Rate ETN
CurrencyShares Euro Currency Trust
CurrencyShares Japanese Yen Trust
iPath JPY/USD Exchange Rate ETN
CurrencyShares Mexican Peso Trust
CurrencyShares Swedish Krona Trust
CurrencyShares Swiss Franc Trust
PowerShares DB US Dollar Bearish Fund
PowerShares DB US Dollar Bullish Fund
Problem can be having them in an ISA (I gave up arguing with TD Waterhouse and several ISA accounts are only for the LSE).
You could hedge with a covered warrant (see http://uk.warrants.com/services/education/ chapter 3) but this cannot be put in an ISA.
I've looked at this too.
Spreadbetting appears to be a great way of playing this. You get a fairly high yield from your GBP Cash ISA, while taking a put on a foreign currency such as Yen.
What I found was, on IGIndex anyway, if you look at a far quarter currency GBP/JPY play (ends Mar 08) you have to pay a 24 point spread! This is exceptionally high and makes it pretty much unusable.
Spreadbetting appears to be a great way of playing this. You get a fairly high yield from your GBP Cash ISA, while taking a put on a foreign currency such as Yen.
What I found was, on IGIndex anyway, if you look at a far quarter currency GBP/JPY play (ends Mar 08) you have to pay a 24 point spread! This is exceptionally high and makes it pretty much unusable.
QUOTE (tune2001 @ Nov 19 2007, 01:34 PM)
I've looked at this too.
Spreadbetting appears to be a great way of playing this. You get a fairly high yield from your GBP Cash ISA, while taking a put on a foreign currency such as Yen.
What I found was, on IGIndex anyway, if you look at a far quarter currency GBP/JPY play (ends Mar 08) you have to pay a 24 point spread! This is exceptionally high and makes it pretty much unusable.
Spreadbetting appears to be a great way of playing this. You get a fairly high yield from your GBP Cash ISA, while taking a put on a foreign currency such as Yen.
What I found was, on IGIndex anyway, if you look at a far quarter currency GBP/JPY play (ends Mar 08) you have to pay a 24 point spread! This is exceptionally high and makes it pretty much unusable.
Yep, that's the problem with IGIndex et al, the spreads on some areas such as sectors are crazy. That's why I stick to ETFs.
24 points = 0.1%, not too bad really?
I happily part with 0.1% every 5 months (bearing in mind the Yen has strengthened something around 12% against sterling in the last few months) in order to have a position in what I consider the most one sided trade currently in all the financial markets.
I happily part with 0.1% every 5 months (bearing in mind the Yen has strengthened something around 12% against sterling in the last few months) in order to have a position in what I consider the most one sided trade currently in all the financial markets.
GBP strengthened quite a bit today (and is continuing!) ... most of my short GBP positions turning red 
Anyone know the cause? My assumption is that furture rate cuts are being considered less likely before Mar 08.
Of course, I'm in it for the long-term
- but would still like to understand the swing.
Anyone know the cause? My assumption is that furture rate cuts are being considered less likely before Mar 08.
Of course, I'm in it for the long-term
- but would still like to understand the swing.
QUOTE (DrBob @ May 29 2007, 12:01 PM)
There's a lot of talk here of a potential sterling crisis. I don't know how likely this is, but I'd imagine that since we import most of our goods, a fall in sterling would be inflationary, demand further interest rate rises and push the housing market down further.
How are other HPCers mitigating currency risk? I've put some money in gold and foreign shares, but they are both quite volatile and I'm not a huge risk-taker. Bonds seem a bit risky in an era of rising international interest rates. I'd like to save some cash in other currencies (Euros/dollars/Swiss francs etc). Does anyone know of practical ways to do this whilst still gaining interest?
I could imaging an Exchange Traded Fund that puts cash into a weighted basket of major currencies, and pays a modest interest rate on the amount invested. It would be great for reducing currency risk, and could even be sheltered under a self-select ISA. Is there such a thing?
How are other HPCers mitigating currency risk? I've put some money in gold and foreign shares, but they are both quite volatile and I'm not a huge risk-taker. Bonds seem a bit risky in an era of rising international interest rates. I'd like to save some cash in other currencies (Euros/dollars/Swiss francs etc). Does anyone know of practical ways to do this whilst still gaining interest?
I could imaging an Exchange Traded Fund that puts cash into a weighted basket of major currencies, and pays a modest interest rate on the amount invested. It would be great for reducing currency risk, and could even be sheltered under a self-select ISA. Is there such a thing?
Hi,
I would probably consider making use of the week dollar depending on how much money you have available, and buy a property(s) once you are sure the market was just about to regain from the recession, it may be an idea to find a US bank to transfer your money in to (once you know which bank isn't going to go bust). Timing is important I would hold off and wait a little while first to see what comes out of the wash.
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