Which Currency Should I Use to Hedge My USD/CAD Investments?
Ever since the beginning of the financial crisis, the big three Forex brokers have been issuing a lot of marketing puff to make sure that you are using their service, and not one of the alternative means. It is for this reason that they are sometimes a little bit tougher on traders and investors, by saying that it is unsafe to use another currency pair to back up EUR/USD and CHF/USD. In the past couple of years, two currency pairs have risen in value by a factor of two or more, but most traders were unable to cope with the situation because of fear and anxiety. But this could change now, as the impact of recession and financial collapse on financial markets is slowly spreading out over time.
These two currencies are poised to break away from the US dollar at some point in the future. It seems that the price is a little bit closer than expected, although it is still too early to say for sure if there will be a break-out, or if the momentum will become too slow. But given the fact that the US dollar has been weakening for a while, it is quite safe to say that the EUR/USD will follow suit. This means that it is a good time to start investing in another currency pair to use as a hedge for your USD/CAD positions.
There are many reasons why you should be using EUR/USD as your back up currency. For one thing, the EUR/USD is higher against the US dollar than other foreign currency pair, which means that if you trade EUR/USD, then you can also use it as a hedge for your CAD position. The other reason why you should use EUR/USD as your back up currency is because it does not reflect the true movement of the currencies of its trading partners.
If you have a unit of the Chinese Yuan and you think that it might appreciate in value, then you can hold it in your online broker account. If you do not have a separate Chinese trading account in your broker, then it is still quite possible for you to trade this currency pair. The thing is that it is possible for these trades to be "cross-currency" – so you will only be exposed to the risk of losing your investment if your position is liquidated.
This can be extremely beneficial, especially if you have a sizable number of trades that you wish to cover each day and there is no other way to do so. Since the USD/CAD pair tends to fluctuate a lot, the USD/CHF pair is a much better idea.
Another option is to use your analytical tools to make an analysis on the financial markets. Analyzing the different data that comes into your account can make a huge difference in your financial stability. Not all of us are good with numbers, so you can utilize analytical tools to make a number of comparisons to see which one is the best hedge to use for your CAD investments.
There are a lot of analytical tools that you can use for this purpose. If you want to really analyze all the options, then you should find one of the software packages that is provided by some of the professional forex brokers. This is one of the advantages of going with a professional brokerage firm.
However, you don't need to worry about this. You can get all the analytical tools that you need at the very reasonable price of under $200. All you need to do is sign up for a demo account with them and you will be ready to start building your money management strategy based on the analytic tools that they have.
This is a good way to get started with the hedging activities. Once you have some decent wins under your belt, you can move on to doing your own hedging strategy. You just need to be careful that you do not lose too much of your initial capital because you did not know all the tools that are available to you, and that you keep a good balance between hedging and investing your capital.
A strong dollar will undoubtedly impact the USD/CAD pair in the future, because it will allow for currencies from around the world to have more demand, and stability. The dollar will be stronger than the other major currencies, and as such, the EUR/USD and CHF/USD will have less influence on the value of the USD/CAD.