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Hedging USD Cash Exposure Back to Polish Zloty

Article Quant Q&A · Author: Matěj Langr
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Summary

The document addresses how an investor whose spending currency is Polish zloty can manage currency exposure when holding or trading dollar-denominated securities through a brokerage account. The proposed approach is to sell accumulated US dollars for PLN in the spot market, converting trading profits and cash back to the investor’s base currency. Doing this regularly can reduce the amount of USD exposure carried between conversions, though it requires repeated transactions.

The answer notes that exchange-traded currency futures may have little liquidity for a less commonly traded pair such as USD/PLN, because much FX activity takes place over the counter. It suggests that a broker or another provider may offer spot or forward transactions instead. The response is brief and does not compare costs, settlement details, tax consequences, or the hedge ratio needed when the value of the underlying securities changes. Investors would need to check current product access and trading terms with their provider.

Key ideas

  • Selling USD for PLN converts dollar cash exposure back into the investor’s spending currency.
  • Regular conversions can keep accumulated trading profits from remaining exposed to USD movements.
  • The answer describes low liquidity in USD/PLN futures and notes that much FX trading is over the counter.
  • Spot or forward transactions may offer alternatives to exchange-traded currency futures.
  • The response does not assess transaction costs, tax treatment, or a portfolio-specific hedge ratio.

Tags

ForexRisk managementExecution
Full text
# How to hedge PLN account on Interactive Brokers


# How to hedge PLN account on Interactive Brokers












I know that you can't have PLN account on IB, the PLN input is exchanged into USD, GBP etc. currency. However I would like to hedge the other currency exposure against PLN, or at least find out how to do it.

Easiest thing would be via FX futures, if I am correct, perhaps through options. I didn't find no FX futures on IB products listing tho, that is why I ask. I found USDPLN FX futures on CME to have 0 open interest thus I assume that there is no liquidity on that pair

So if there is some guy who knows his IB, how would you hedge such position specifically on IB?

Thanks a lot.

## Answer by ThatDataGuy (score 1)

https://quant.stackexchange.com/a/53487

Err, if its cash, then you can hedge your exposure to USD by selling USD in the spot market for PLN. That's called "sweeping" your PnL back to your base currency. To be efficient, you'll have to do that daily - its sucks, but that's part of the deal when it comes to trading USD denominated securities when you don't use USD to pay your bills.

You won't find much liquidity in FX futures, as the FX market operates almost exclusively OTC. You can find another broker to do straightforward FX cash or forward trades if you want. In fact, I would be surprised if IB don't already offer that directly with them.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.