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How do 'successful' Forex Traders deal with their home countires currency fluctuation
This is my first post, I am new to this forum, and forex trading but have a question that has been bugging me for quite some time, and it comes from a recent trade I did in a stock in the US, as I am in Australia.
I bought the stock, it appreciated 20%, yet when I sold it, and it was converted back to AUD, it was a loss! The AUD had appreciated so much in that time.
This got me to looking deeper into this and I realize that this is not something a successful forex trader can ignore. Well maybe a very short term trader..maybe...but someone who trades off longer term charts, i.e. hourlies to weeklies, must surely have to consider this.
I have a few examples of movements on the EUR/USD to demonstrate my point
If you had gone short the EUR/USD on the 12th April 2010, and then convered on the 7th June 2010, you would have netted about 1810 pips, and lets say for argument sakes you were trading $1 lots and you traded just that one lot, thats a profit of $1810 USD. But when converting back to AUD, it would have resulted in a AUD loss.
12th Apr 2010
EUR/USD rate 1.3690
AUD/USD rate .9387
therefore your one mini lot as Euros in AUD = 1.4584 (1.3690/.9387)
7th Jun 2010
EUR/USD rate 1.1875
AUD/USD rate .8095
therefore your one mini lot as Euros in AUD = 1.4670 (1.1875/.8095)
Doing the math here, this would have resulted in a 86 pip loss in AUD!!!!!!!
7th June 2010
Long EUR/USD @ 1.1875
AUD/USD rate - .8095
one mini lot as Euro in AUD 1.4670 (1.1875/.8095)
4th Nov 2010
EUR/USD rate 1.4280
AUD/USD rate - 1.0175
one mini lot as Euro in AUD 1.4034 (1.4280/1.0175)
What was a 2405 pip gain in EUR/USD ended up being a 636 pip loss in AUD!!!!!!
Just for clarity here because some people only look at pips and not $. Using the last trade again in $ this time
I buy one hundred Euro at 1.1875 it cost me $146.70 AUD
Then I sell those euros at 1.428 and receive $140.34 AUD
A loss of $6.36!
Basically I have looked at a lot of my trades from backtesting and there is no escaping this currencey fluctuations, UNLESS it seems, you are lucky enough to have your home currency stay perfectly still or better yet, move in the opposite direction to the traded one.
So my question to those that have succeeded at trading forex, and trade outside of the US or, or those that live in the US that trade other currency pairs such as EUR/JPY and other crosses (that do not have the USD) is
How do you counter this?
Re: How do 'successful' Forex Traders deal with their home countires currency fluctua
1. Best option - denominate your trading account in your home currency. (Then you can ignore this problem)
2. Second best option - denominate your trading account in a currency you believe will in the long term strengthen vs your home currency. (You may be wrong)
3. Just ignore it - focus on making higher returns than the fluctuations of your home currency.
Also, its not something you can look at in the short and medium term, but rather the very long term, otherwise you just add a layer of complexity to an already confusing situation.
4. As an Aussie - for which the long term outlook is great especially vs JPY you can make a long term trade to offset short & medium term volatility in other pairs.
5. If amounts are worth it use cost averaging to repatriate funds - trying to time your small commercial fx transactions as if you are trading is just silly. Ask me, I get many small amounts in.
Then also don't forget the huge impact of banks stealing from you just because you transact in fx. I have recently had the worst ever. For some unknown reason a client sent payment in ZAR (he converted it on his side). The spread was about 60 cents on 700 cents. My cost is usually 10 cents on 700 cent. Where I would have converted at about 7.05 it was converted at 6.55
Hope that helps.
Chance favours the prepared mind
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