What Is Currency Risk on a Foreign-Denominated Account

One account, two currencies, one real year

Currency risk on a foreign-denominated account is the account's value moving in the money you actually spend, without a trade being placed. Take a 10,000-dollar account held by someone who lives in euros. On 2 January 2025 the euro against the dollar opened at 1.03510, so the account was worth 9,661 euros. On 31 December it closed at 1.17449, and the same 10,000 dollars were worth 8,514 euros: 1,147 less, 11.9 per cent, with nothing traded all year. An account that made 500 dollars was still 721 euros down. To stand still in euros it needed 1,347 dollars of profit before its own trading counted for anything.

One price tag, two shops

Picture one price tag read in two shops. The tag says 10,000 and was printed once. In the dollar shop it reads 10,000 every day of the year. In the euro shop it is re-read every morning at that day's exchange rate: 9,661 in January, 8,514 in December. The account is the tag, the platform is the first shop, and the country the trader lives in is the second. Currency risk is the difference between the two readings moving while the tag stays the same, and it moves whether or not the account is touched, in either direction, by amounts the platform never shows.

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