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Since Fx Fwd has different underlying risk factors, it decomposes the positions into different cash flows. The spot (currency) position is created to account for the impact of exchange rate fluctuation.


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You have already agreed to pay $QK$ EUR at $T$ to receive $Q$ units of A. If you sell $Q$ lots of $F^A(t,T)$ then you will receive $Q F^A(t,T)$ EUR and deliver $Q$ units of A. The combined flow is now just in EUR: at $T$ you receive a net of $Q(F^A(t,T)-K)$ EUR. You can hedge that by selling $Q(F^A(t,T)-K)$ of $F^{FX}(t,T).$ Then with both hedges, the net ...


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What you're trying to do is express all your positions in terms of a risk currency. Then you can track your PnL in only one currency. You need to express all this in an Excel spread sheet and include some rates, a bit like the screenshot here.


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A currency quote (EURUSD 1.1, for example) put into an equation with units is 1 EUR / 1 USD = 1.1 or 1 EUR = 1.1 USD. Units or volume of a currency pair is expressed in terms of the base currency (EUR in the example), which means bids are buying and asks are selling the base currency. I glanced a few examples and it looks like you're right, but here's one ...


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For spot EURJPY with a USD risk currency, the EUR is expressed in USD using the EURUSD spot rate, say 1.1145 so your 100 USD means you can short 100 / 1.1145 = 89.7 EUR If you wanted to express the risk currency then you use the equivalent rate usually through the USD. In this case you would be buying EUR with your USD to then short EURJPY. So if you're ...


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The size of your bet should be expressed in dollars as well. Most brokers allow to trade lots of at least $1000 at time, independently of which pair you're trading. Anyway I think that you should read your broker guideline in order to understand better what's happening.


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To a FX trader, "considerably out-of-the-money" means "low delta" and "close to at-the-money" means "close to 50% delta." That is, moneyness is measured in terms of delta. A useful way to understand this is that delta measures the probability of finishing in the money[1]. A 10% delta option has 10% chance of finishing in the money; a 50% delta option has ...


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Yes, you can use e.g. the ECB daily official foreign exchange rate data as a reliable and consistent daily timeseries. ECB does a fixing at 14:15 CET, by some methodology they call a "daily concertation procedure". I don't easily find a description of the details (are they considering only traded prices, or bids and offers? How long of a time window ...


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I went through historical data, and computed the daily P&L of the strategy, and correlation with GBPUSD is perfect, so the strategy is indeed affected by currency risk, even if at all times, 5 UK stock = 1 ADR see graph Now I still need to understand why, because my expectation was to remain at all time with a position equivalent to the one I had with ...



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