FOREIGN MARKETS

["Jeffrey B. Stewart" <oakshadows@xxxxxxxxxxxxx>]

Hi RTs,

Anyone position trade non-US futures market on foreign exchanges?  If
so, do you hedge the underlying currency risk?

Here is my question:

If I am long one German bund (DM 250,000) and the interest rate does not
change but the D-Mark price moves from 5700 to 5600, wouldn't it be true
that the value of my position would have gone down by US $2,500?

That clearly would be the case if I were long two contracts of D-Mark
(DM 125,000) and the price moved from 5700 to 5600; I would lose US
$2,500.

If the above analysis is true, then it seems that when trading the
German bund or other non-US markets the fluctuation in the underlying
currency can be a major factor in the profit or loss of the trade, a
factor not covered by the technical analysis model used to trade the
foreign market.

Is my analysis correct or have I failed to consider something? If my
analysis is correct, it would seem that position trading non-US markets
by a US trader should be accompanied by hedgeing the risk of change in
the value of the underlying currency against the US dollar.

Thanks,

Jeff