Wednesday, November 30, 2022

What are “dollar futures” and how can they protect you from devaluation? Nation World News

so far this year, BCRA (Central Bank of the Republic of Argentina) The wholesale market only accumulates net purchases of US$316 million, a figure that means less than 5% of the net balance received in the same period last year, when the amount was US$7,091 million (as of August 2021) ).

It takes two business days in August and has already sold about US$280 million, even in a context where energy demand has dropped significantly. Although the rise in the price of energy was one of the reasons behind the BCRA not accumulating reserves, the main reason being the exchange rate difference between the official dollar and the fiat dollar and the blue is about 110%.

this day, serge massa As the super minister of the economy assumes and expectations are placed on concrete measures to strengthen the Central Bank treasury and reduce political and economic uncertainty in the country. Martin Guzman resigned untimely, and his short-lived replacement sylvina batakisoDidn’t reassure the market.

In turn, in the latest measures adopted by BCRA At the end of June, the tightening of stocks was announced, until import payments were limited. 30 September, except essential commodities. How in every situation where the government strengthens the stock, it increases the exchange rate differential and causes more problems for the monetary unit.

In turn, many companies are facing a problem as they have to keep pesos in their portfolio while waiting for authorization to move abroad. In this situation and in the context of high volatility, it is important that both companies and investors know the best means of hedging against potential devaluation.

since TSA Bursatil, The company that develops investment solutions recommends certain instruments that allow the investor to hedge risk in the event of a sharp increase in the official dollar. ,Facing a highly volatile and uncertain scenario, not covering is not an option”, he says. Next, they point out that there are tools such as Linked to Bonus Dollars, negotiable liability You mutual funds (FCI), But they believe that the most appropriate tool is dollar futures,

“Allows leverage of the futures position, as approximately 20% of the said position is required to be distributed as collateral to purchase a $1 contract (equivalent to $1,000). In other words, against an official devaluation. To hedge, it is not necessary to distribute the total position, but only 20%”, they describe in their analysis.

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What are Dollar Futures?

Let’s start by defining what the “future” is in the financial sector. Futures are contracts in which the parties agree to make a purchase or sale at a future date, but at a price determined at the beginning of the operation.

Futures are contracts in which the parties agree to make a purchase or sale at a future date, but at a price determined at the beginning of the operation.

futures Their purpose is to set the price of an underlying asset in advance, in the case of our analysis this would be the dollar price. (“Officer”).

These contracts may or may not be accompanied by physical delivery of the underlying. An example of a contract with physical delivery belongs to Soja Camara di Rosario., The future of the dollar is without physical delivery, meaning we never receive a dollar bill. All futures that we can trade through the bull market platform are without physical delivery.

Now, with respect to dollar futures, if we are never going to receive the bill, the question arises, what do we get for operating them? In dollar futures, only daily gains or losses are offset against the official exchange rate, This means that if we get any profit today, at the end of the day they credit it to the original account and in case of loss, they debit us the same amount.

The minimum amount to work in dollar contracts is 1 contract, which is equivalent to 1,000 USD. There are also wholesale dollar contracts, in which a minimum of 1,000 contracts must be purchased, i.e. the equivalent of USD 1,000,000, these are what institutional investors operate.

Dollar future today guarantees us the price at which the dollar will be purchased in the future, in order to have coverage against devaluation. Furthermore, it operates with a high level of leverage, as the money is only integrated in the form of a guaranteed margin at the beginning.

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If hedging is sought against an increase in the dollar: Buy futures dollars.

If you are looking for coverage against declining dollar: Sell future dollars.

Why is it recommended as a form of coverage?

Currently, August futures are trading at around $141.6 and September futures at $151.9, which means they have nominal rates of 84.5% and 89.4%. Each position expires on the last working day of each month and is adjusted against the reference exchange rate communication “A” 3500 (Wholesale), today at $129.6.

However, as every investor knows, it is not advisable to hold all the money in a single instrument and you should think about an integrated and diversified portfolio that can cover us from the highest risk, yielding the best possible returns. .

TSA Bursatilu suggests to distribute the available capital as follows: “25% in LEDES with the same maturity as the Roforex position; 25% in fixed terms on 50% TNA; and the remaining 50% distributed in surety and FCI money markets, with Average yield 39/40%”.

Once the strategy is assembled, “even if the year’s accumulated official depreciation is estimated at approximately 47% and is compared with the level of implied rates of the Roforex futures market and the yield of the portfolio suggested for that purpose, A positive difference closer to 1 or 2% will be obtained as the overall result of an operation.

“It is important to highlight that coverage should not be analyzed in terms of profit or loss, but as a decision to reduce the risk to which one is exposed.” As an example, he explains, it would be like paying car insurance every month: “If the holder doesn’t have an accident, he won’t regret paying. futures hedging strategy It works the same way”, he explains from the unit.

Therefore, in order to achieve certainty in terms of uncertainty, both in the prices of the above variables and in the rules on certain operations, TSA Bursatilu Recommends using some of the hedging strategies offered by Capital Markets.

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