Ask YC: Europeans, how do you protect against falling dollar in Adsense?
9 comments
Currency hedging is what you're looking for - it is a way to minimize risk when doing business with fluctuating currencies.
Say you have a contract for $10000 USD due 6 months from now and the EUR/USD rate is $1.40 when you signed the contract. If the USD falls to 1.5 in those 6 months, you've lost ~7% on that contract, but if it stregthens to 1.3, then you've made a free ~7.5%.
Since you just want to make the contract and not play on the forex market, what you do is you open up a currency trading account and take the exact opposite position to the one in your contract. In your contract you lose money if the USD falls, so in your hedge, you open up a short position on the USD, such that you make the exact same money that you lost on the contract.
So once you've signed the contract, take a $10000 short position on the EUR/USD pair. If the USD weakens, you lose from the hedge, but gain from the contract, if the USD strengthens, you lose from the contract but profit from the hedge, so there is no risk to you no matter where the currencies go.
The downside is that you need the same amount of money to hedge as the amount you're expecting. One way to get around this is to use a leveraged trading account, however this restricts the amount of fluctuation your hedge can handle before getting a margin call - for example if you use a 5:1 leveraged account (that is, use $2000 to trade a $10000 position), your hedge will protect you against swings of close to 20 cents. So depending on how much money you have available to hedge and the amount of fluctuation you want to be protected against, you can choose how much leverage you want. (here's a tool to estimate it: http://www.fxtrade.com/tools/fxcalculators/margin_call_calcu...)
The good news is that with today's forex platforms, this is perfectly accessible/doable for any sized business/personal transactions.
Note: I do work for OANDA, but I'm just a developer there. I posted since I really do think currency hedging is neat. :)
Say you have a contract for $10000 USD due 6 months from now and the EUR/USD rate is $1.40 when you signed the contract. If the USD falls to 1.5 in those 6 months, you've lost ~7% on that contract, but if it stregthens to 1.3, then you've made a free ~7.5%.
Since you just want to make the contract and not play on the forex market, what you do is you open up a currency trading account and take the exact opposite position to the one in your contract. In your contract you lose money if the USD falls, so in your hedge, you open up a short position on the USD, such that you make the exact same money that you lost on the contract.
So once you've signed the contract, take a $10000 short position on the EUR/USD pair. If the USD weakens, you lose from the hedge, but gain from the contract, if the USD strengthens, you lose from the contract but profit from the hedge, so there is no risk to you no matter where the currencies go.
The downside is that you need the same amount of money to hedge as the amount you're expecting. One way to get around this is to use a leveraged trading account, however this restricts the amount of fluctuation your hedge can handle before getting a margin call - for example if you use a 5:1 leveraged account (that is, use $2000 to trade a $10000 position), your hedge will protect you against swings of close to 20 cents. So depending on how much money you have available to hedge and the amount of fluctuation you want to be protected against, you can choose how much leverage you want. (here's a tool to estimate it: http://www.fxtrade.com/tools/fxcalculators/margin_call_calcu...)
The good news is that with today's forex platforms, this is perfectly accessible/doable for any sized business/personal transactions.
Note: I do work for OANDA, but I'm just a developer there. I posted since I really do think currency hedging is neat. :)
Thank you I will evaluate this thing, I'm curious. But I'm not really in favor of adding complexity to the stuff (complexity-> loss of money). I think the best thing I can do is finding an euro-based ad network.
Depends what you want to do with the money. Personally, I set up a Dollars currency account just to host my AdSense cheques. Kindly, Google does not do electronic funds transfer to a currency account so I have to stick with long waits and delays.
With the Dollars not being exchanged, I'm building up a travel fund and not losing value (apart from US inflation). I go to the USA once in a while, and the earnings pay for pretty much everything I do there. World-wide, there are a few currencies pegged to the US$, so the money can be used for traveling to those countries too.
In short, you'll only have a problem if you want to use the earnings in Europe. Otherwise, you can be very creative with it.
A related note: I sometimes wish Paypal would let me link my US$ account to my Paypal account. That would make life so much easier.
Pierre
With the Dollars not being exchanged, I'm building up a travel fund and not losing value (apart from US inflation). I go to the USA once in a while, and the earnings pay for pretty much everything I do there. World-wide, there are a few currencies pegged to the US$, so the money can be used for traveling to those countries too.
In short, you'll only have a problem if you want to use the earnings in Europe. Otherwise, you can be very creative with it.
A related note: I sometimes wish Paypal would let me link my US$ account to my Paypal account. That would make life so much easier.
Pierre
Well, actually I'd like to pay my rent and live (in €) with this money ...
Will see if I earn enough to travel after breakeven (and I don't think I'm going to the US soon).
Will see if I earn enough to travel after breakeven (and I don't think I'm going to the US soon).
I was afraid you were going to say that :)
One thing I forgot to mention in my original reply: if you keep the US$ as is, maybe you can use them to pay for online services like hosting and stuff. It would be neat if you could like a currency credit card to help that along.
Pierre
One thing I forgot to mention in my original reply: if you keep the US$ as is, maybe you can use them to pay for online services like hosting and stuff. It would be neat if you could like a currency credit card to help that along.
Pierre
I think that is a general economics problem one cannot solve easily until consequences of sub-prime crisis pass by and US dollar gets stable. Here in russia we are suffering from low dollar too, since all the contracts we have with north american companies are executed in US dollars, and they don't want to switch to Euro or any other currency. The losses we had for last six months hit $80k which is I think too high for a small startup like ours :-(.
whoah ! It's time to limit your exposition on the US market !
But I understand, that's it's not easy, if you stop being on a market, you might never be able to come back.
Good luck, I feel your pain.
Good luck, I feel your pain.
Diversify. There are about 10 great UK/europe based ad networks. Sure you have to do a bit of work yourself picking good adverts, and you might get paid per lead/sale more often than per click, but the average revenue is comparable or even more than adsense.
Question is, are there any European ad systems that would provide enough relevant ads for your site? I'm not saying there aren't, and I would like to see some better competition against google in this area, but I know one of the benefits of Adsense is that they have such a large base of advertisers, they have relevant ads for nearly every topic:
http://basketweavingtips.blogspot.com/2007/09/underwater-bas...
Not to mention more advertisers creates competition.
http://basketweavingtips.blogspot.com/2007/09/underwater-bas...
Not to mention more advertisers creates competition.
Yeah, the logic is quite simple: the more advertisers get into business the higher bids become, the harder it gets to advertise anything on Google and the more revenue to Google money-making machine :-(.
We quit advertising on Google a couple of months ago due to this same issue: it became virtually impossible to bid on any word that has a corelation to "voip".
We quit advertising on Google a couple of months ago due to this same issue: it became virtually impossible to bid on any word that has a corelation to "voip".
I wonder if and how much Europeans are bidding up prices in some categories.
Loan the equivilent amount in dollars and convert it into the currency of your choice. When the money is withdrawn, you can pay the debt with inflated dollars. This is the standard strategy, but it only works with collapsing currency.
put as many of your costs into $ as possible (hosting, etc) so you're hedged there.
Get a forex account and buy USD put options. This is what the option markets are for.
Do you have any advice to limit this negative effect ? I think the obvious thing to do is quitting adsense for a 100% European ad system ?