Currency speculation for dummies
April 3, 2015 7:19 AM Subscribe
My wife and I are planning a trip to Europe in the next two years. Right now the Euro seems to be crashing. Would it be a good idea to buy about $3,000 of Euros as a hedge against it rising in the future, or am I an idiot for even considering this?
Note: I will be flying from the U.S.
Is there a relatively painless way to buy Euros online, as opposed to having a bag of money sitting around the house?
Please be kind.
Is there a relatively painless way to buy Euros online, as opposed to having a bag of money sitting around the house?
Please be kind.
An idiot? No.
It could go up.
It could go down.
In general, and with all kindness, the fact that you have to ask this means you are probably not cut out for speculating on currency fluctuations.
posted by veggieboy at 7:37 AM on April 3, 2015 [2 favorites]
It could go up.
It could go down.
In general, and with all kindness, the fact that you have to ask this means you are probably not cut out for speculating on currency fluctuations.
posted by veggieboy at 7:37 AM on April 3, 2015 [2 favorites]
I don't think this question deserves the scorn of the typical currency speculation thread, any more than would a farmer who's locking in a price on a future harvest.
You're going to Europe, you're going to spend Euros. If you want to lock in this rate because its a good deal, buy away. Price could go up, price could go down, but you've got a tangible use for the currency.
posted by hwyengr at 7:40 AM on April 3, 2015 [16 favorites]
You're going to Europe, you're going to spend Euros. If you want to lock in this rate because its a good deal, buy away. Price could go up, price could go down, but you've got a tangible use for the currency.
posted by hwyengr at 7:40 AM on April 3, 2015 [16 favorites]
As noted above no one can answer your first question because no one knows what the EUR/USD rate will be in two years. Sure, you can read lots of opinions, but it could be anything. Depends upon factors arising in the future which we can't possibly know about now. So you can either buy the Euro, or not, or buy only say $1000 worth as a partial bet. As for avoiding having a bag of money hanging around, sounds like you want a Euro bank account. If you are in the US, it's difficult. Citibank offers one in their private banking division. I've heard that HSBC does. But it's not easy. Probably not worth it...fees, hassle, etc. If you have a brokerage account you can buy the Euro ETF, ticker FXE, for a 0.4% annual expense ratio. I'd say either forget the whole idea, or buy $500-$1000 Euro cash from your bank and just keep it in an envelope with your passport. If the Euro drops further you've limited your losses. If it rises you can spend your earnings on a nice espresso at an outdoor cafe.
posted by mono blanco at 7:44 AM on April 3, 2015 [3 favorites]
posted by mono blanco at 7:44 AM on April 3, 2015 [3 favorites]
But to answer your other question, if you don't want to carry cash, you can buy traveler's checks in Euros in the US. The additional fees, though, might make it a worse proposition.
posted by hwyengr at 7:46 AM on April 3, 2015
posted by hwyengr at 7:46 AM on April 3, 2015
I don't think this is nearly as complicated as the first two posters. If the exchange rate is good now, and you want to lock in that price, there's no reason not to. Yes, the exchange rate could be even better for you in two years, but it also could be much worse. You are taking a chance of missing out on an excellent deal for the security of getting a very good deal now and warding off a horrible one. People make that kind of choice all the time. It's not like you are risking your retirement or anything. The only thing that makes this not-necessarily-a-good-idea is factoring in the conversion fees to buy Euros in the U.S. That will eat into your potential savings, making it harder to see a substantial benefit. It's cheaper to buy Euros in Europe, and that needs to be factored in. But pretty much all the major banks will sell you Euros--do some comparison shopping and see who has the lowest fees.
posted by Pater Aletheias at 7:49 AM on April 3, 2015 [7 favorites]
posted by Pater Aletheias at 7:49 AM on April 3, 2015 [7 favorites]
You want to lock in the cost of your trip - that is reasonable in certain circumstances , eg if you wouldn't be able to afford it if the euro went up. However, I don't know what would be the best way to do this in practice.
posted by canoehead at 7:50 AM on April 3, 2015 [1 favorite]
posted by canoehead at 7:50 AM on April 3, 2015 [1 favorite]
I just buy currency at my bank. If you know you are going to Europe, I think it is a good idea to lock in at today's rates, which are quite favorable. I certainly do this with yen because I travel to Japan frequently.
I do it all in cash because Japan is largely a cash society. I don't see the big deal in having a few thousand cash euros in the house. It's not a bag - the money will fit in an envelope.
posted by Tanizaki at 7:51 AM on April 3, 2015 [4 favorites]
I do it all in cash because Japan is largely a cash society. I don't see the big deal in having a few thousand cash euros in the house. It's not a bag - the money will fit in an envelope.
posted by Tanizaki at 7:51 AM on April 3, 2015 [4 favorites]
You would need the Euro to appreciate more than a comparable investment that you could make with the dollars for this to be worth your while
posted by sid at 7:52 AM on April 3, 2015 [7 favorites]
posted by sid at 7:52 AM on April 3, 2015 [7 favorites]
Should you be speculating in FX? No, of course not. But it sounds like you just want to lock in the current EURUSD exchange rate, which is fine. Could the Euro weaken even more and you regret your decision? Yes.
EURUSD is around 1.1 right now and let's say you buy it and by the time you do your Europe trip, it's back to 1.3. In that case you would have locked in 2,700 EUR for $545 less.
Now consider if the Euro weakens further and is 0.8 by the time you make your trip. Then you would have spent $3,000 USD for 2,700 EUR when you could have had 3,750 EUR had you not hedged.
So I don't really know what your question is - obviously you could end up better or worse off both ways, which I'm sure you realize. Currency hedging makes sense for companies that have costs in one currency and revenues in another currency. It doesn't really make any sense for people going on one-time trips.
If your question is really just "is EUR the buy of a lifetime here?" then in my opinion, no it is not.
posted by pravit at 7:54 AM on April 3, 2015 [1 favorite]
EURUSD is around 1.1 right now and let's say you buy it and by the time you do your Europe trip, it's back to 1.3. In that case you would have locked in 2,700 EUR for $545 less.
Now consider if the Euro weakens further and is 0.8 by the time you make your trip. Then you would have spent $3,000 USD for 2,700 EUR when you could have had 3,750 EUR had you not hedged.
So I don't really know what your question is - obviously you could end up better or worse off both ways, which I'm sure you realize. Currency hedging makes sense for companies that have costs in one currency and revenues in another currency. It doesn't really make any sense for people going on one-time trips.
If your question is really just "is EUR the buy of a lifetime here?" then in my opinion, no it is not.
posted by pravit at 7:54 AM on April 3, 2015 [1 favorite]
What I notice is that none of the posters have answered your question re: "is there a relatively painless way to buy euros online?" I suspect that that means no. If it was easy and cost free to say, open a savings bank in France with no exchange costs than sure, why not take a flyer. Unfortunately opening a brokerage account to try to lock in today's rates sounds like a waste of time. I think it must be one of those biases: the fear missing what seems like a good deal right now, seems greater than the fear of losing money in the future.
posted by Pembquist at 8:02 AM on April 3, 2015
posted by Pembquist at 8:02 AM on April 3, 2015
Also you should consider the opportunity cost. If a $3,000 trip to Europe is affordable to you at 1.1 EURUSD but not 1.3 EURUSD, then that is probably a lot of money for you. You won't have that $3,000 around for the next 2 years, it'll just be 2,700 EUR you can't do anything with until your Europe trip.
And - don't buy FXE. It is an ETF denominated in USD and your P&L is in USD. First of all, if you make money on the investment (EURUSD goes up), you have to pay taxes on it. Second of all (and maybe more important), psychologically it will hurt you much more to lose money on FXE (EURUSD weakens) than to lock in EUR at a higher rate, even though financially speaking it is exactly the same.
If you really must do this, go to your bank, exchange the currency, put the 2,700 EUR in a safe deposit box, and forget about it.
posted by pravit at 8:07 AM on April 3, 2015 [1 favorite]
And - don't buy FXE. It is an ETF denominated in USD and your P&L is in USD. First of all, if you make money on the investment (EURUSD goes up), you have to pay taxes on it. Second of all (and maybe more important), psychologically it will hurt you much more to lose money on FXE (EURUSD weakens) than to lock in EUR at a higher rate, even though financially speaking it is exactly the same.
If you really must do this, go to your bank, exchange the currency, put the 2,700 EUR in a safe deposit box, and forget about it.
posted by pravit at 8:07 AM on April 3, 2015 [1 favorite]
You'll be fine carrying €2700 in cash into Europe, and almost certainly safe from being robbed if you have all but your day's spending money in a moneybelt. A lot of your major expenses (car hire, hotels) might prefer to be paid with a card anyway, which could be tricky. But apart from that I can't see an issue with buying the cash now. Except for the exchange rate risk. It's not as if savings accounts pay any interest.
posted by ambrosen at 8:09 AM on April 3, 2015 [2 favorites]
posted by ambrosen at 8:09 AM on April 3, 2015 [2 favorites]
I think Felix Salmon suggested a week or three ago on the Slate Money podcast that we might see rates within the .8-.9 EURUSD range in the next few months. Greece is probably going to be a big drag on the price of the Euro for some time yet. I'd definitely do this, but I'd probably spread my Euro purchases out over a few months.
posted by wotsac at 8:45 AM on April 3, 2015 [3 favorites]
posted by wotsac at 8:45 AM on April 3, 2015 [3 favorites]
Everbank has savings accounts and CDs denominated in Euros.
posted by H21 at 9:05 AM on April 3, 2015 [1 favorite]
posted by H21 at 9:05 AM on April 3, 2015 [1 favorite]
I thought I saw Goldman was predicting 0.8-0.9 EURUSD, but not until 2017. We might hit parity (€1=$1) this summer...
In any case if you really would like to take advantage of the trend, why not dollar-cost average your way in?
Buy €250 every few months until your trip. If the EUR falls more you won't save as much but if it rises, your potential loss won't be as bad.
But take a serious look at what those F/X fees will be from your bank. Saving 5% means nothing if the bank wants 10% to deliver you that currency.
posted by JoeZydeco at 9:36 AM on April 3, 2015
In any case if you really would like to take advantage of the trend, why not dollar-cost average your way in?
Buy €250 every few months until your trip. If the EUR falls more you won't save as much but if it rises, your potential loss won't be as bad.
But take a serious look at what those F/X fees will be from your bank. Saving 5% means nothing if the bank wants 10% to deliver you that currency.
posted by JoeZydeco at 9:36 AM on April 3, 2015
Depends on where you're planning to go in Europe.
If France, then most everything is done via credit/debit/bank card nowadays. There's been a real sea change in the past few years. Rare now are the restaurants that don't accept cards. You wouldn't need more than 100-200€ in cash for exceptions, I would think. I say that as someone who regularly only has 1-2€ in my wallet. I'll only visit a distributor (ATM/cash machine) if I know I'm going out with friends, and that's to share expenses, i.e. give bills to friends, not stores.
I mainly point this out because sometimes banks don't charge exchange fees, they "just" shimmy the exchange rates a few points in their favor. Whereas when you pay with a card, you get the most favorable rate of the day, and depending on your bank (check with them!), no fees.
All that could make exchanging a thousand or so dollars into euros in order to lock in exchange rates a moot point.
posted by fraula at 10:31 AM on April 3, 2015 [2 favorites]
If France, then most everything is done via credit/debit/bank card nowadays. There's been a real sea change in the past few years. Rare now are the restaurants that don't accept cards. You wouldn't need more than 100-200€ in cash for exceptions, I would think. I say that as someone who regularly only has 1-2€ in my wallet. I'll only visit a distributor (ATM/cash machine) if I know I'm going out with friends, and that's to share expenses, i.e. give bills to friends, not stores.
I mainly point this out because sometimes banks don't charge exchange fees, they "just" shimmy the exchange rates a few points in their favor. Whereas when you pay with a card, you get the most favorable rate of the day, and depending on your bank (check with them!), no fees.
All that could make exchanging a thousand or so dollars into euros in order to lock in exchange rates a moot point.
posted by fraula at 10:31 AM on April 3, 2015 [2 favorites]
Looking at the 10 year chart for the exchange rate, we're definitely near historic lows. The reason we're near them is that the economy of Europe is shitty and looks likely to remain so for some time. If the Euro keeps sinking, then maybe by the time of your trip it'll be at say, 0.8 (€3750). The historic high was 1.6 ish, reached briefly during the worst of the 2008 crash; if you'd exchanged then you'd have gotten about €1875. The average over the ten year period was about 1.25; that'd get you €2400. It is possible for the Euro to sink below 0.8 of course, but that implies an economic crisis centred on the continent as impactful as the crash of 2008; if something that bad happens who's to say you'll even go on this trip.
So setting the upper and lower bounds as €4,000 and €1800, worst case scenario by exchanging now you miss out on €1,300. Best case scenario by exchanging now you save yourself €900. Far more likely case scenario: you gain/lose €300 ish bucks.
So the question you have to answer given your own financial circumstances is: is it worth it to you to lock up $3000 now to potentially save yourself €300 in the future? How likely is it that you're going to want/need to access that money? If you can easily afford to sock away $3,000 and not touch it ---- and more importantly, if you think it likely that the economy of Europe will have recovered sufficiently by the time of your trip that the rates then will be less favourable, sure, go nuts.
If however, you'd feel better having an extra $3,000 in emergency savings/your retirement accounts, or you think it likely that economy of Europe is going to continue to suck wind between now and your trip, then it's probably not worth it. Your worst-case scenario loss (you lock in at 1.1, and the rate falls to 0.8 or so) is considerably more (€1300) than your best case scenario gain (€900, that is, the rate rises to 1.6, which again, has happened only once in the past decade for a week or so in 2008).
posted by maggiepolitt at 10:40 AM on April 3, 2015
So setting the upper and lower bounds as €4,000 and €1800, worst case scenario by exchanging now you miss out on €1,300. Best case scenario by exchanging now you save yourself €900. Far more likely case scenario: you gain/lose €300 ish bucks.
So the question you have to answer given your own financial circumstances is: is it worth it to you to lock up $3000 now to potentially save yourself €300 in the future? How likely is it that you're going to want/need to access that money? If you can easily afford to sock away $3,000 and not touch it ---- and more importantly, if you think it likely that the economy of Europe will have recovered sufficiently by the time of your trip that the rates then will be less favourable, sure, go nuts.
If however, you'd feel better having an extra $3,000 in emergency savings/your retirement accounts, or you think it likely that economy of Europe is going to continue to suck wind between now and your trip, then it's probably not worth it. Your worst-case scenario loss (you lock in at 1.1, and the rate falls to 0.8 or so) is considerably more (€1300) than your best case scenario gain (€900, that is, the rate rises to 1.6, which again, has happened only once in the past decade for a week or so in 2008).
posted by maggiepolitt at 10:40 AM on April 3, 2015
Given that you're definitely going to spend in Euros, buying at the current rate sounds like a good idea - if you can find an easy way to do it. Other posters have pointed out that it is easier and cheaper to buy Euros in Europe, rather than the US - be careful that the exchange rate difference doesn't eat up any gains from buying ahead.
Also, that much in cash? Eeek. I've generally found it much more convenient to just convert a minimal amount of cash to local currency at the airport - yes, you're paying a bit extra for the convenience - and using credit cards for almost everything else. You can get many credit cards that promise no fees on foreign exchange transactions, so you'll essentially pay at the realtime floating exchange rate.
And as a further aside, watch out for chip-and-pin requirements in Europe, very different from the chip-and-signature cards that most of the US banks will try to fob you off with if you ask.
posted by RedOrGreen at 11:12 AM on April 3, 2015
Also, that much in cash? Eeek. I've generally found it much more convenient to just convert a minimal amount of cash to local currency at the airport - yes, you're paying a bit extra for the convenience - and using credit cards for almost everything else. You can get many credit cards that promise no fees on foreign exchange transactions, so you'll essentially pay at the realtime floating exchange rate.
And as a further aside, watch out for chip-and-pin requirements in Europe, very different from the chip-and-signature cards that most of the US banks will try to fob you off with if you ask.
posted by RedOrGreen at 11:12 AM on April 3, 2015
I would do it if you can spare the money. The Euro could always depreciate in value, but you would have good odds that your investment would appreciate in value somewhat and very limited downside risk. Obviously, anything can happen, so don't make an investment you can't afford to lose. Enjoy your trip.
posted by gibbsjd77 at 11:13 AM on April 3, 2015
posted by gibbsjd77 at 11:13 AM on April 3, 2015
Depends on where you're planning to go in Europe.
A good point. Just because a country is an EU member doesn't mean that they also use the Euro, and who knows what the makeup of the EU will be in two years?
IIRC, Wells Fargo doesn't require you to have an account to use their currency exchange services, and you can use your Visa or Mastercard for the purchase.
posted by evoque at 11:54 AM on April 3, 2015
A good point. Just because a country is an EU member doesn't mean that they also use the Euro, and who knows what the makeup of the EU will be in two years?
IIRC, Wells Fargo doesn't require you to have an account to use their currency exchange services, and you can use your Visa or Mastercard for the purchase.
posted by evoque at 11:54 AM on April 3, 2015
I tend to use my no-fee, no exchange rate load card when in Europe. I don't like carrying a lot of cash, and comparison sites have showed it's as favourable as shopping around for the best exchange rate. However, as I'm in the UK the card is chip and pin - the older swipe kind might be more difficult to get on with.
The dollar was two to the pound a few years ago. Generally, it's $1.50. I really wish I'd bought some then and put them aside - but then, if I'd had the money to do so back in 2007 and put it in a savi GS account t instead, I probably would have made up that difference.
posted by mippy at 12:47 PM on April 3, 2015
The dollar was two to the pound a few years ago. Generally, it's $1.50. I really wish I'd bought some then and put them aside - but then, if I'd had the money to do so back in 2007 and put it in a savi GS account t instead, I probably would have made up that difference.
posted by mippy at 12:47 PM on April 3, 2015
I live in an EU country 5-7 months a year. I bought enough Euros a month ago to cover my expenses there for the next two years--Good or bad idea--I don't honestly know but I thought it reasonable to take a flyer. I have a checking account in Ireland so the purchase was very simple--just transferred USD to Euro account. The money is going to be in one bank or another--this was not speculating just hedging some savings a bit. If there is an easy/painless/low fee means to do this without an account in Europe I am not sure how. To be honest--unless you are doing business in Europe or moving substantial amount of money I have always taken the position that living with a fluctuating exchange rate is the cost of traveling. Enjoy yourself.
posted by rmhsinc at 1:28 PM on April 3, 2015
posted by rmhsinc at 1:28 PM on April 3, 2015
Brit here with a euro-denominated credit card for use when travelling within the rest of Europe.
Currency speculation is not for the amateur but my view is that is that the euro is more likely to decrease in value in the medium term than it is to increase in value. Spain, Greece, Italy, probably France are all fairly hopeless economies and many of the other EEC countries seem to be reliant on EEC subsidies so I can't see how the euro can strengthen. So I would put aside some dollars each month to prepare for this trip and use that as a fund to buy euros nearer the time..
posted by epo at 1:46 PM on April 3, 2015
Currency speculation is not for the amateur but my view is that is that the euro is more likely to decrease in value in the medium term than it is to increase in value. Spain, Greece, Italy, probably France are all fairly hopeless economies and many of the other EEC countries seem to be reliant on EEC subsidies so I can't see how the euro can strengthen. So I would put aside some dollars each month to prepare for this trip and use that as a fund to buy euros nearer the time..
posted by epo at 1:46 PM on April 3, 2015
This thread is closed to new comments.
No, currency trading is a thing. It's a career for some people...
Would it be a good idea to buy about $3,000 of Euros as a hedge against it rising in the future
... a career for some people with Ivy League MBA degrees and quantitative backgrounds that spend 10 hours/day, 7 days a week monitoring the markets, ensuring that the exchange rate is exactly set to match their future expectations of the market. In other words, you'd be betting that you know more about the US/European economy than those professionals. That's not a good bet.
posted by saeculorum at 7:36 AM on April 3, 2015 [2 favorites]