I developed an automated strategy with a holding period of approx. 1-2 weeks. As the account is demoninated in EUR and the stocks it invests is in USD, I am currently thinking about how to minimize the currency risk. I was wondering what you guys are doing? Do you have experience or help with this issue?
Here my two ideas:
1. Convert once the total EUR amount into USD (so i really have USD) and go short USD/EUR to hedge my physical position.
PROs and CONs
+ less prone to errors,
+ minimal transaction costs
- realized profit/loss will not be hedged and needs to be manually hedged
2. Each trade will also open a currency hedge trade, f.e. buy for 1000$ stocks also short USD/EUR for 1000$.
PROs and CONs
+ realized profit/loss will also be hedged
- higher transaction costs
- more prone to errors? (for instance: LMT order of stock is not filled, but hedge transaction is filled, or vice verca...)
I am really thankful for any comment on this issue or how you handle this problem.
Thanks and have a nice day!
cNuuuuuu
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