How to short currency on IB?

OK so I’m the dumb type, never had FX exposure other than converting currencies, I’m not touching options, 'cause I don’t have the risk capacity OR the skills… nevertheless I’m having a hunch now for an FX pair (especially CHF-HUF) that I’d like to try… basically shorting the Hungarian Forint against the Chuffs. Seems like a fair deal given their last 15-yr past performance (and whatever’s coming into Central Europe).

Is there an easy way to just run a forint short selling position (potentially with 5x leverage) without touching on futures and option trading? I could probably run it long term, like 6 months+. Sorry for the totally n00b question, but I feel kinda overwhelmed by the IB web UI. If there’s a simple and easy way, and you could enlighten me, I’d really appreciate it. You can also tell me if I should rather forget it forever :slight_smile:

I believe nobody has the skills to short a currency

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Maybe I’m a bit naive but: “borrow in the currency you want to short, exchange the borrowed currency in the currency you want to take a long position in, et voilà!” Shouldn’t it work?

That being said, the real answer, for me, is that if I didn’t want to touch options or futures, I’d stay away from forex trading and from any kind of shorting too.

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Short version: skip the idea and don’t!

Long version:

Basics:

  • first of all, you should know what you are doing
  • you should know the 101 of forex trading before considering a long-term short position
  • know which forex brokers are out there - a lot of those brokers are bucket shops, and you won’t get the real Forex price, but instead you trade against the broker. Avoid those bucket shops at all costs!
  • using leverage when you have no knowledge in Forex trading is a really bad idea

Deeper dive:

  • only very few brokers are offering CHFHUF pair: that’s already a bad sign
  • you should get familiar with things like traded volume of a currency pair. For CHFHUF, the volume doesn’t look good (from my very quick first check)
  • you want to make sure you have enough liquidity, that’s why most of the experienced Forex traders are going for pairs like EURUSD and GBPUSD. Unless you really know what you are doing, stay away from exotic curreny pairs (I personally count CHFHUF as exotic)
  • get clear on why you think HUF will lose even more going forward in the next 6+ months
  • get familiar with things like overnight swap fees when you want to trade long-term
  • a proper risk management is needed - again that needs learning and also real life experience with forex trading.

So, long story short: I don’t think it’s a good idea.

Please see two screenshots below (one to see that the available options for brokers are slim, the other one to see the 1W chart going back to 2013):

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borrowing in HUF would involve paying annual interests in the 7-10% zone, basically consuming large part of your potential future gains.

I can also just swap a lot of my HUF holdings to CHF and “wait for the currency to fall more”, but that’s not too effective (although it would’ve worked fairly well so far).

First: thanks for this :slight_smile: I expected it, but let me go further.

do you have good sources to beef me up? :slight_smile: I know it’s a super-high-risk area and I also know that motivation with the lack of experience and skill is super dangerous, but anyway I’m ready to lose money as a learner’s fee as my conviction otherwise is pretty strong.

I’m Hungarian and been following the politics and economics of the country for long. Same patterns as Turkey and Argentina and now that the gov’t was reelected they have structural problems but no currency targets on the HUF. If you go back to 2005 the CHF-HUF pair was trading below 150, the trend seems not to reverse on the technicals as well as no sign of an economic turnover for the next 4 years either.

is this only bad because I’m not getting the best prices or are there other caveats as well? As long as the broker skims my wins by 1-2% I think I’d be fine with that.

In this case I suggest you to rather not hold any forints unless you need it in next few weeks. Will solve the problem that I think you are trying to solve.

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I don’t have a problem to solve (not a lot of HUF on hand, actually) but rather a situation to profit from.
(edited my previous post to reflect reality a bit more)

Then borrow forints from your friends in Hungary :laughing:

Seriously, financing with overnight rates demanded by FX brokers will kill you.

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On the other note, If you trust the efficient market hypothesis (I trust and FX markets are extremely efficient), you can’t profit. Considering all expenses, you probably will get negative returns. Indeed you can profit by arbitraging, borrowing HUF from people who can’t get the market returns and pay them an interest lower than the market one. That means, yeah, borrow from individuals. Do you want to go into this game? I wouldn’t.

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I would have to look up resources. Tried some forex trading myself (with help from a professionel Forex trader), but it wasn’t very successful. Plus, even though I spent hours and days reading about the topic, I still managed to lose money.

You say that you are ready to lose some money as a learner fee. Please note that you can not only lose the money you invested, but much much more in case of leverage.

Still, I will try to check if I can find some good resources. It’s just not my main topic, and what I said before was mainly from my own experiences trying to learn it. To give you a better idea: I wanted to book a Forex course from someone who’s been doing it for 10+ years, but this guy stopped his program and instead concentrates on Crypto. More money to be made in crypto.

Playing devils advocate now: why do you think you know more than those professional Forex traders out there? Don’t you think that some people would already have taken a position if your assumption was so obvious? Don’t take it personally - it’s just for you to understand that you are playing with the big fish when it comes to Forex markets.

If you want to short CHF-HUF long-term, you will need to educate yourself about overnight rates first. For starters: here, here and here. Hint: it’s a little bit complicated.

Once you figured out the overnight rate topic, you need to check for lot sizes. Usually, for long-term trading, you go with really tiny lot sizes (unless you have a lot of capital). After deciding on the lot size, you need to set your SL (stop loss) and TP (take profit) targets. E.g. For long-term, you might want to use 200 pips for your SL. It can still backfire and your SL is triggered. That’s where risk management comes in. You don’t want to risk more than 2% for each trade. Which means that even if you are right about the long-term trend, you won’t make fortunes.

Forex is usually played in short-term durations, not so much long-term. Yes, you can make money with long-term stuff, but it’s more complicated.

It is pretty bad, because the broker might just do stop-loss hunting. You might get stopped out, even though your general idea was right. For the bucket shops, you are not only playing against the market, you are actually playing against the house. The broker sees your stop-loss in their system, and can use that information against you.

You really need to carefully select the right ECN broker to avoid that problem.

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That, to me, suggests that this market is efficient and there is no arbitrage opportunity with a good enough profits/risk-costs ratio, as the others have pointed out.

It’s “easy” to see an opportunity but we tend to have more difficulty (at least I do) to realize that/when other participants have identified it too and it is currently correctly priced to reflect its opportunities and costs, at which point taking a stance on it going one direction or another is a bet.

Not saying all markets are always efficient (we seem to have seen a lot of very optimistic pricing lately) but it is a real possibility that this one currently is.

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I’m not debating markets being efficient, I don’t want to arbitrage and I’m not in for 200pip wins.
I’m setting on a trend that’s been going on for 15 years without stopping and I believe it will go on. I could sell in 6-12 months when the currency hits another 10-15% higher, that’d be 75% win with 5x leverage or a margin-call into a total loss with a 20% drop (if I’m right?).

Consider it’s the SPX and it’s 2015, same setup, just on FX. :smiley:

Are you taking into account the huge gap in interest rates? AFAIK interest rate differential are fairly important there. I think what you can bet on is unexpected change in FX, the interest rate differential and curve already tells us some drop is expected (and priced).

edit: seems like that’s what’s explained here: https://www.cmegroup.com/education/courses/introduction-to-fx/importance-of-fx-futures-pricing-and-basis.html

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It’s a bit more complicated than what you describe. Your 75% win and 20% loss means your SL will be much closer to the current rate than the TP. Which means it might get triggered with higher probability.

The long-term trading my friend did was in a large range (200 pips) with the smallest lot size. You also need to first get familiar with lot sizes, to know how much money is at risk.

I hope you checked the links I pointed to above. The first one is about rollover rates for a lot of currency pairs, and as you can see they don’t even have CHFHUF. There’s only EURHUF and USDHUF. So it might already be a problem to get a proper rollover rate for this currency pair.

Personally, I think it’s a bad idea for the following reasons:

  • CHFHUF is an exotic pair, and most probably very illiquid
  • it’s hard to find rollover rates for this pair
  • you might get stopped out when putting your SL too tight (look at the CHFHUF daily chart in March - it went from 398 on 07.03.22 down to 355 on 17.03.22 / 354 on 29.03.22 - that’s an 11% decline and would most probably hit your long-term SL)
  • risk management is THE key when it comes to Forex - I see more risk in this setup and reward

But again: I’m only a noob who’s not a real expert in Forex :slightly_smiling_face: