Profit/Loss Management via Forex: Strategy to Implement or Not?

[Sebastian]

Hello again Jerome,

I have a quick question about profit/loss on Forex.
As the determining PF requires a "relatively active strategy" of buying/selling stocks and converting currencies into different currencies, how do you manage or integrate Forex into your performance and is it a "subject"/performance of the determining PF?

By doing a statement this morning over 1 year, I see that I have for example a "well" negative realized P/L on the Forex for example with a "good" realized loss in particular on the USD as the prices have changed quite a bit over 1 year with the CHF and that I had to convert my CHF into USD for investment needs on the New York Stock Exchange...

Do you see it as a "bad thing for a good thing" losing on Forex but (hoping) winning on the stock bought in the new currency?

Is there a currency strategy to adopt or not especially in the short/long term?

Curious about your opinion 😉

Thanks a lot
Have a good day
Sebastian

[Jerome]

Hi Sebastian,

your question is timely, since I am in the process of writing my monthly PF review article, which talks about the recent surge of the Swiss franc, in particular vs the dollar and the yen. I will let you read this post at the beginning of May for the details, but in short, short-term currency fluctuations tend to be offset in the medium/long term by the intrinsic value of assets. This is what I talk about in my book. The excellent book by J. Siegel also mentions this phenomenon.

To avoid these short-term fluctuations, you have to borrow in the currency of the asset, but in doing so you have to pay interest. If you have a margin account on IB for example, this is done automatically. I have already read quite a bit on the subject and I have come to the conclusion that hedging against currencies is not necessary, or even counterproductive.

See also the very clear article by Quant Investing about this.

• This reply was modified 1 year, 8 months ago by Jerome.

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