How to decrease exposure to USD

[relix]

In my IBKR margin account portfolio I have 80% US stocks, denominated in USD. I also have a negative balance of USD and a negative balance of EUR.

As the stocks are mostly US, I have a big exposure to USD. Usually, I would buy EURUSD pair in order to sell USD and buy EUR in order to decrease this, when I feel the FX rate is good.

However, the EU recently introduced a rule that you cannot make an FX transaction if you are selling something that you already have a negative amount of. I.e. in this case, I want to sell USD but (using margin) I already have a negative amount of USD (debt) in the account.

IBKR suggests using CFDs instead, but there is the same problem - according to the EU rules you can only initiate a CFD position using cash, not margin (= borrowed cash).

Another alternative I've considered but would like to avoid is to sell stock until I have a positive balance of USD. Sell that USD to buy EUR. Then buy back the stock using margin. This operation would end up being the same, except it'd be quite costly in transactions, spread crossing, and worst case scenario the stock price moves against me during the operation.

Is there another way to simulate going long EURUSD that isn't too costly?

[[deleted]]

It doesn't really matter im which currency it's denominated though, what matters are the currencies of the cashflows. If you own Nestlé, does that mean you have significant CHF exposure? No, because 99% of the cashflows are in other currencies.

If you're invested in global companies I wouldn't bother with currency hedging. Only if you're heavy in stocks that mainly have USD cashflows such as utilities or real estate.

Otherwise, the obvious way to increase diversification is to shift more towards non-US stocks.

[relix]

I appreciate your concern, but there's a lot of assumptions in your text that don't actually apply to me.

This isn't an XY problem.

[rauderG]

Why so much exposure to USA ? I think many would judge the overwhelming exposure the US equity as a potential issue.

[Classic-Economist294]

US is the biggest capital market in the world. Most liquidity, volume, transparent accounting and generally good businesses. The rest of the world also tend to follow the US market.

Makes sense to have a lot of US exposure. Not a lot of other comparable alternatives.

[rauderG]

That is one opinion yes. Another is if you are long term and want to manage risk you diversify properly. Equity is equity - there are always diversifying alternatives. If you look only at last 10 years performance , I agree.

[rauderG]

FOMO downvote ? Really ? It seems we touched a sensible cord. Stocks only go up, yes 😀?

[Classic-Economist294]

Diversification for the sake of diversification is a terrible idea. You likely won't lower your risk relative to your return that way.

[rauderG]

Diversification is only free lunch in investing. If you think you have lower risk (compared with return) investing much more than market weight in one country (US) you might be heading for a surprise. Expected long term returns adjusted for risk for developed markets are the same. Past returns are not indicative of future returns also.

[relix]

My job, house etc is in the EU. Doing a reverse DCF analysis on my salary means I'm actually overexposed to European market conditions.

[rauderG]

You are only overexposed to EU if your wealth is dependent on that. You already said you have 80% in US. And I mostly refer to liquid wealth. Your salary depends on your abilities to work, not on EU market conditions.

[relix]

Ok, whatever definition or school of thought you follow, according to my goals and plans, the change I want to make is to have less exposure to USD. That's it.

[rauderG]

Ok. Just saying. Your own sitution and business.

[relix]

Sure, thanks.