Friday, November 10, 2006

Currency Exposure and Hedging: Part II

Diversifcation makes sense in currency trading in the same way it makes sense in stock trading and investing. For example, in the last couple of days I thought the US Dollar would fall. Turned out I was right but the Australian Dollar also turned out to be weak. So just buying Australian Dollars did not turn out to be the way to profit from the move in the USD. In retrospect the Euro would have been the best choice. One couldn't have known that upfront but being diversified away from the US Dollar - holding say AUD, Euro, and Yen would have been a better strategy than just buying the Aussie. Don't put all your eggs in one basket.

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