Did I really loose money?

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Skrider
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Did I really loose money?

Post by Skrider »

Dear copiers and followers,

Today I analyzed the effect of the $EURUSD on gains and losses.

Like many of my copiers, I live in the Eurozone, so in the end I have to buy my potatoes with euros, not with the dollars that eToro calculates in.

I'll clarify this with an example:

On September 15, I bought a share of $MFA (MFA Financial Inc) for $4.47 at a $EURUSD of 1.18. So I bought the $MFA share for €3.79.

At the time of writing, the stock is $4.45. Did I make a loss of 0.02$ (-0.45%). In dollars yes, but as I said, I have to buy my potatoes with euros.

I bought the stock for $3.79. The $EURUSD is now 1.12. So in euros the share is now worth €3.97. And so I have a profit of € 0.18 (+4.89%).

The numbers are rounded here and there, but that doesn't change the tenor; the exchange rates also determine (short-term) profit or loss.

Of course, this story also applies to the portfolio as a whole. I take my portfolio for the month of November as an example. That looked pretty bad at first glance. But was it that bad, the dollar has also risen considerably during that period.

On November 1, my simulated result was about $10100, that's about €8706 at a EURUSD of 1.16.

On November 30, my simulated result was about $9810, which is about €8681 at a EURUSD of 1.12.

So in dollars I lost $290 (-2.87%) in November, but in euros only €25 (0.29%). So the loss was much smaller than I initially thought.

These are just examples that turn out well, of course this can turn out completely different with a different EURUSD course.

This risk is largely hedged in my portfolio, Skrider, because in addition to a diversification in continents and sectors, I also maintain a diversification in currencies.


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