Your broker's hedging policy and why it matters.

Say you bought EUR/USD and it has fallen 50 pips. On some accounts you can open a sell of the same size on the same pair without closing the buy. You then hold both, and further price moves stop changing your result.

Whether your account allows this, and how much margin the two trades tie up, is your broker's hedging policy. It varies by broker and account type, and the country where the broker is licensed can restrict it.

What does hedging mean on a trading account?

In this lesson, hedging means holding a buy and a sell on the same instrument, in the same account, at the same time. When both are the same size, one gains exactly what the other loses.

An equal buy and sell like this is often called a locked position, with zero net exposure to the pair while the lock is in place.

In wider finance, hedging also means reducing risk on something you already own. This lesson covers only the account version.

Hedging accounts and netting accounts

Platforms record positions in one of two ways. A hedging account keeps every trade as its own position, so a buy and a sell on EUR/USD can both stay open.

A netting account keeps one position per instrument. A new order in the opposite direction shrinks or closes the position you already hold.

MetaTrader 5 supports both modes, and the broker chooses the mode for each account type. MetaTrader 4 records each order separately, so it behaves like a hedging account unless the broker restricts it.

Take a buy of 0.10 lot of EUR/USD that is 50 pips down, with each pip worth $1. In a netting account, a sell of 0.10 lot closes the buy and books a loss of −$50.

In a hedging account, both trades stay open with a floating loss of −$51. The extra dollar is the spread: a new sell starts 1 pip down, as every new trade does.

A smaller sell in a netting account shrinks the buy instead. Selling 0.04 lot against a buy of 0.10 lot leaves a buy of 0.06 lot, because 0.10 minus 0.04 is 0.06.

A demo account test shows which mode you have: open a small buy, then an equal sell on the same pair, and see whether two positions appear or the first one disappears.

How do brokers charge margin on a hedged pair?

Start with one leg, using round illustrative numbers. A lot of 0.10 on EUR/USD is 10,000 euros. At 1.10000 that is 10,000 × 1.10000 = $11,000 of notional value.

With leverage of 1:100, the margin for that leg is $11,000 ÷ 100 = $110. A sell of the same size at the same price needs the same $110 on its own.

When you hold both, brokers use one of a few methods to set the used margin:

Some brokers use a reduced rate in between, such as half margin on each hedged leg. On equal legs that gives $55 + $55 = $110, the same total as the larger leg method.

The same two trades can therefore tie up $220, $110 or nothing. That changes your free margin and how close the account sits to a margin call. The margin calculator gives the single-leg figure for other pairs and sizes.

On MetaTrader, the contract specification for a symbol may show a hedged margin value. If it is blank or unclear, ask the broker how hedged positions are charged.

A worked example: locking a losing trade

The prices below are illustrative. With a $1,000 balance and 0.10 lot of EUR/USD, each pip is worth $1.

1. You buy 0.10 lot at the ask of 1.10000.
2. The price falls to a bid of 1.09500 and an ask of 1.09510, a 1 pip spread.
3. The buy is valued at the bid: 1.09500 − 1.10000 = −0.00500, which is −50 pips, or −$50.
4. You sell 0.10 lot at the bid of 1.09500. A sell closes at the ask, so it shows 1.09500 − 1.09510 = −1 pip, or −$1.
5. The total floating loss is −$51, so equity is $1,000 − $51 = $949.
6. The price falls again, to a bid of 1.09000 and an ask of 1.09010. The buy shows 1.09000 − 1.10000 = −100 pips, or −$100.
7. The sell shows 1.09500 − 1.09010 = +0.00490, which is +49 pips, or +$49. The total is still −$51.

Margin level is equity divided by used margin, times 100. With full margin it is $949 ÷ $220 × 100 = 431%. With the larger leg method it is $949 ÷ $110 × 100 = 863%.

Strictly, a sell opened at 1.09500 needs $109.50 rather than $110, which moves the full margin result only to 432%.

Under zero hedged margin, used margin is $0, so the platform usually shows no margin level.

In a netting account, the same sell would have closed the buy at the bid of 1.09500 and booked −$50, leaving a balance of $950.

If you later close the two legs one at a time, the lock ends at −$51 with a 1 pip spread, because it paid the spread one extra time.

MetaTrader's Close By order closes the legs against each other at their own prices, which leaves −$50 instead.

What does a hedge still cost you?

A locked pair freezes the price result, but your equity can still move.

The first cost is the spread. The buy is valued at the bid and the sell at the ask, so a wider spread hurts the total.

If the spread widens from 1 pip to 5 pips, equity falls by 4 pips × $1 = $4 with no change in the middle price.

Spreads tend to widen around news and when market activity is thin. The next lesson, on where your broker's prices come from, explains why.

The second cost is overnight swap. Each leg is charged or credited separately, and the two rarely cancel. With an illustrative −$0.70 on the buy and +$0.20 on the sell, the lock costs $0.50 a night, or $10 over 20 nights.

On a commission account, each leg also pays its own commission, so a lock costs about twice the commission of a single trade.

The last cost appears when you lift the hedge. Closing the sell leaves the buy fully exposed again, and under zero hedged margin the used margin jumps from $0 to $110 at that moment.

In price terms, a lock is the same as closing the trade now and opening a new one when you lift it, plus extra swap and often extra spread. There is little evidence that locking improves results compared with closing or using a stop loss.

Where is hedging restricted, and how do you check?

Rules depend on where your broker is licensed. In the United States, retail forex dealers must close trades on a first in, first out basis and may not hold opposite positions on the same pair in one account.

Other regions allow it, but each broker still sets its own terms. Some client agreements forbid hedging between two accounts, or between accounts at different brokers, especially when a bonus is involved.

Before you rely on hedging, check these points:

1. The account type page says whether hedging is allowed or the account uses netting.
2. The contract specification, or support, says how margin on hedged positions is calculated.
3. The client agreement says whether hedging across accounts is allowed.
4. A demo test confirms that two opposite positions stay open side by side.

Ask support too whether the hedged margin rate can change, for example before weekends or major news, since that alters used margin on open positions.