Strategy for change Euros into another currency. The right way.

There are quite a stir with the Spanish financial system and not for less. There are many people who come to the blog through an article I wrote about how to protect ourselves in case of financial playpen . Well, there are many readers who ask about the foreign exchange, exchange euros for dollars or Swiss francs.

A priori there is no secret but deep down is a dangerous operation to our heritage and here we will explain some concepts.

We will explain a strategy to follow if you want to change our euros for another currency, so whether there playpen, etc. back to the peseta.

Let's start from the premise that there is a strategy for all profiles and you have to be very clear concepts, which has a high risk and often not worth the want to protect with the end result.

To protect small amounts best and most practical refrain would buy U.S. stocks, get the money from the bank and save it at home or invest in a product that is not in euros and that is outside of our national borders.

Come to the point. It turns out that if we change our euros for Swiss francs Swiss francs have more euros as it changes at a rate of 1.20 francs per euro. If you always had this change of currency would not have any problem but not, it fluctuates daily and can vary significantly over time. For example, the October 12, 2007 was changed at a rate of 1.67 euro and Swiss franc on August 10 de 2011 to 1.04 francs a euro, almost parity.

What does that mean? Somebody would have changed 1000 euros into Swiss francs maximum day would have had 1670 Swiss francs and minimum day with the same 1000 euros only 1040 Swiss francs.

Example. If we change 10,000 euros to obtain CHF 12,000 CHF (Swiss Francs). (We do not have commissions to make it easier).

The change of today is 1 Euro 1.20 CHF but if in one year we have to recover the money and change is in 1.40 not recover the 10,000 euros but we have to do the following calculation: 12,000 / 1.40 = 8571 euros. With only twenty cents change coin we lost 1429 euros.

On the contrary if we do change to 1.10 Swiss francs will earn 10 cents euro the currency exchange and we bagged 900 euros obtaining a total of 10,900 euros.

So far there is no secret, pure mathematics. Doing this is very simple but do it well and minimizing risk is more complicated.

What would we do? Would open an account with a Forex broker (broker who works with currencies) and we we would have to create a hedge on our exchange.

If bought at 1.20 and increases (1.25, 1.30 ...) lose money so we will long (buy) in the EUR / CHF, ie bet that the change will continue to grow, that way currency exchange our money but lose our operation in derivatives will win, and more or less have to compensate.

We detect that the price turns and the Swiss franc starts to revalue against the euro, as long as we closed our investment in itself is no longer in losses.

If detected again as trends change can re-open a long or short hedging.

Summarizing. If the investment goes well we do nothing, if it goes wrong we opened a financial derivative currency pair opposite to our investment and investment lose but win with derivatives, to compensate. By detecting turnaround derivative will be closed and that our investment will not pro our derivative loss itself.

Surely there are people who do not understand these concepts, as I said at the start that it is a strategy for people who have some mastery of finance. But basically it's not complicated. You just have to learn to manage financial derivatives in Forex is tricky as there are lots of leverage and we can be more expensive the coverage of investment loss itself.

He opened the floor to questions