Currency exposure, decoded

Why FX matters even though you didn't 'invest in currency'

When you buy a US-listed stock from a euro account, your broker first converts euros into dollars, then buys the shares. From that moment on you own dollars-worth of stock. Whether the dollar later strengthens or weakens against the euro changes your portfolio value in euros even if the share price never moves.

Example: you buy 100 shares of a US stock at $100 when EUR/USD is 1.10. Your cost in euros is €9,091. A year later the price is still $100, but EUR/USD has dropped to 1.00. The position is now worth €10,000 — a 10% euro gain from a 0% local gain. Pure FX.

Local return vs total return in your currency

Local return is the move of the share price in its own currency. FX return is the move of the currency pair. Total return in your currency is approximately the sum: when the dollar gains 5% and the stock gains 5%, your euro position is up about 10%.

The exact formula is (1 + r_local) × (1 + r_fx) − 1. The two terms compound, so big FX moves on a big local move can compound surprisingly fast in either direction.

How FolioInsights computes FX P/L

FolioInsights values every buy lot at the FX rate on its buy date, then revalues today's position at today's FX. The difference is your FX P/L — the part of your gain (or loss) that comes purely from currency moves rather than the underlying business.

Because each lot uses its own historical FX rate, the panel is exact rather than an average. If a historical rate isn't available for a particular lot, that lot is footnoted and skipped quietly — silently using today's rate would make the FX P/L collapse to zero and lie about it.

Hedged vs unhedged ETFs

A currency-hedged ETF uses derivatives to neutralise the FX effect, so your euro return is roughly equal to the index's local return. The trade-off is cost (a hedged version typically charges 5–15 bps more) and the fact that hedging cuts both directions — you give up the windfall when the dollar strengthens.

Over very long horizons, currencies tend to mean-revert and FX adds noise rather than return — which is why most long-term investors hold unhedged equity. For shorter horizons or income strategies that need a steady euro number, hedged versions can be the right call.

Reading the Currency Impact panel

The panel shows total FX P/L in your display currency at the top, then a per-currency breakdown so you can see whether USD or GBP did most of the damage (or favour). The Analytics page's top-KPI tile mirrors this number alongside the foreign-currency share of your book.

A useful gut-check: if foreign-currency share is high and FX P/L is large in either direction, your headline return is partly a currency story. Stripping it out — using local returns — is the honest way to know whether your stock picks are working.

See your FX P/L →

Is positive FX impact 'real' money?

Yes — but it's not from your stock picking. If you convert the position back to your home currency today, you keep the FX gain. The honest framing is that FX P/L is real money, but it isn't a reflection of investment skill; it's a side-effect of where you happen to live.

What if I only buy euro-denominated ETFs?

You can still have FX exposure indirectly. A euro-denominated MSCI World ETF holds underlying assets in dozens of currencies; when the dollar moves, the fund's NAV moves in euro terms even though the ticker is in euros. Hedged share classes are what neutralise that indirect exposure.

How is FX P/L different from realised P/L?

Realised P/L is what you actually crystallised on sales (sell price minus average cost). FX P/L is a slice <em>inside</em> your total return — applicable to both open and closed positions — that isolates the part driven by currency moves rather than the share price itself.

Why does FolioInsights need historical FX rates?

To value each buy lot at the FX rate that actually applied when you bought it. Using only today's FX would collapse FX P/L to near zero and label the result as authoritative, which would be misleading. Missing-history lots are shown but flagged, never silently averaged out.

Should I hedge my equity exposure?

For long-horizon equity, usually no — currencies tend to mean-revert and hedging just adds cost. For bonds, short-horizon goals, or strategies where you need a predictable home-currency number, hedged share classes can make sense. The Currency Impact panel helps you see how much noise FX is adding to your specific portfolio.