Convert Canadian to Dollars

With the US congress haggling over a short term increase in the US debt ceiling it is probably not a good time to convert Canadian to dollars. On the other hand if the US congress comes through with both a short term fix and a long term solution to the burgeoning US debt this might be exactly the right time to convert Canadian to dollars. The Loonie has risen to as high as 83 cents on the US dollar and fallen as low as 63 cents on the dollar over the last five years. During that time average exchange rate has been 72 cents on the dollar. The currency rate is around 70 cents on the US dollar. If the dollar goes into free fall over a national debt crisis the Loonie could become a refuge for many fleeing a falling dollar. If the US congress pulls the proverbial rabbit out of the proverbial hat, the US dollar could rise substantially. Knowing when to convert to Canadian to dollars could be very profitable at that point.

For the average citizen wishing to travel from Canada to the USA it is possible to convert Canadian to dollars at any bank on either side of the border. For the investor interested in profiting from the varying exchange rate between the greenback and the Loonie, Forex trading will typically be more efficient. In this case an investor will open a trading account with a broker and purchase a trade station with the hardware and software necessary to trade foreign currencies. He will require a substantial internet bandwidth in order to move the large amounts of data required for active trading. At that point a trader will learn how to do technical analysis of currency pairs, specifically the US dollar versus the Canadian dollar. Let’s assume that the trader and his broker are in Toronto, Montreal, Ottawa, or Vancouver. His trading account is in Canadian dollars. To convert Canadian to dollars of the US variety he will enter a Forex trade to buy US dollars with Canadian dollars. He can also purchase or sell future contracts for the same currency trade or purchase or sells options contracts for the same trade.

If a trader wishes to reduce the risk of his investment he will often choose to buy options rather than convert Canadian to dollars directly. If he believes that the price of the US dollar will fall in relation to the Canadian dollar he will buy puts on the US dollar with the Canadian dollar or calls on the Loonie with the Greenback. If he believes that the US dollar will recover in relation to the Canadian dollar he will purchase calls on the US dollar with the Canadian dollar or puts on the Loonie with the greenback. In buying options the trader can only lose the premium paid for the options contract. He also leverages his investment capital as he only pays the price of the premium. If the US dollar and Canadian dollar perform as expected he only needs to exit the options contract by making the opposite trade in order to profit. He does not necessarily need to convert Canadian to dollars in order to profit in options trading.