Hedging Currencies When Trading US Markets

This stock trading question about hedging currencies comes from James B. who asks:

“If you decide to trade US stocks  how do you hedge your currency position (assuming your capital is originally AU domiciled)?”

Great question.

If you use a cash account then you will be exposed to currency exposure on both the full capital and any realised P&L. Whilst you shouldn’t get too caught up in the minor swings and roundabouts, you should try and trade in and around the big moves. Something like a 200-day moving average may suffice. Depending on the type of broker you use, this can be done by either converting the funds to USD or doing a USD trade as a hedge.

If you have a Reg-T account (US term for margin account), then you can actually fund positions in any currency with your AUD. Your only exposure in that instance is on realised and unrealised P&L which you can switch back to AUD at any time.

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