Risk & Money Management
Intermediate
Hedging
Also called: hedge
Holding offsetting positions to reduce risk — e.g. long EUR/USD and short EUR/GBP to neutralise EUR exposure.
Definition
True hedging uses correlated instruments to cancel out a specific risk (e.g. holding a USD asset and selling USD futures). Retail FX ‘hedging’ often means holding opposite positions in the same pair — which is mathematically a closed trade, just with double spread and swap cost.
US-regulated brokers prohibit same-pair hedging (FIFO rule). Most non-US brokers allow it.