Oct 23 2009, 12:00 AM
QUOTE(zamans98 @ Oct 22 2009, 10:42 PM)
Simple.
Say your US Equity is USD5,000
EX Rate:
3.45 = 17,250
Say today the rate is 3.3, so straight away your value is 16, 500, lose 750.
Please IGNORE the Buy/Sell rate of FOREX from local bank.
So, if you target RM/USD at 3.00, means straight away lose RM2,250
So, to hedge, you use say 1000$ to buy say GOLD or NZD or AUD.. Appreciation from the rise of that instrument will cover your losses in exchange rate.
That's is HEDGING in layman term, unless some1 wanna argue about it.
agree +1Say your US Equity is USD5,000
EX Rate:
3.45 = 17,250
Say today the rate is 3.3, so straight away your value is 16, 500, lose 750.
Please IGNORE the Buy/Sell rate of FOREX from local bank.
So, if you target RM/USD at 3.00, means straight away lose RM2,250
So, to hedge, you use say 1000$ to buy say GOLD or NZD or AUD.. Appreciation from the rise of that instrument will cover your losses in exchange rate.
That's is HEDGING in layman term, unless some1 wanna argue about it.
to hedge is to effectively buy another currency which neutralises/weakens the effect of a volatile dollar. but seriously unless you got a big amount invested in overseas securities then there's no hurry to hedge. just trade like usual, your gains will more than definitely offset your currency risk.
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