What Is Hedging in Forex Trading?

Short answer: Hedging in forex means opening a second position to offset the risk of the first. The simplest form is holding a buy and a sell on the same pair at once. It can freeze a floating loss at its current size, but you still pay the spread, possible swaps and tied-up margin, and not every account allows it.

Direct hedge on EUR/USD, pip value about $10 per lot. Illustration, October 2026.

How a direct hedge works

You buy 1 lot of EUR/USD at 1.0850. The price drops to 1.0820, so the trade shows a floating loss of 30 pips, about $300 at roughly $10 per pip. You are unsure whether the fall will continue or reverse. Instead of closing, you open a sell of 1 lot at 1.0820.

From this point the two positions cancel each other on price:

Price	Buy from 1.0850	Sell from 1.0820	Total
1.0790	−60 pips	+30 pips	−30 pips
1.0820	−30 pips	0	−30 pips
1.0880	+30 pips	−60 pips	−30 pips

The result stays at −30 pips, about −$300, wherever the price goes. That is the point of the hedge, and also its limit: it does not recover the loss, it only stops it growing or shrinking while both positions are open. The first costs are the spread paid on the new position and any commission.

What a hedge costs

• Spread and commission on the second position.
• Swaps. Each open position can pay or earn a swap at rollover. On a buy and a sell of the same size the two swaps often do not cancel, and the net can be a charge. Swap-free accounts treat this differently, so read your account terms.
• Margin. Brokers handle this in different ways. Some charge margin on both positions, some on the larger side only. If margin is charged on both, hedging uses more of your free margin, and the margin level used for a margin call and stop out can fall.

We do not state a margin rule for any broker on this page. Check the margin and hedging section of your broker’s account terms.

Whether your account allows it

Account type decides this, and so can local rules and the broker’s policy.

• On a hedging account, a buy and a sell on the same pair are held as two separate positions.
• On a netting account, opposite positions on the same pair are combined into one, so a sell against an open buy reduces or closes it.

Many platforms offer both modes, and brokers choose which one they enable. Look for the mode in your account details before you plan a hedge.

Hedging with a different pair

Some traders hedge with a second pair that tends to move the same way. A trader long EUR/USD might sell GBP/USD against it, to reduce exposure to a falling euro or a rising dollar. The offset is partial, because the two pairs do not move one-for-one, and the link between them changes over time. A bad correlation can leave you losing on both positions.

Hedging or closing the trade

Closing a losing trade realises the loss and ends the exposure. A hedge keeps the loss unrealised, adds costs each day, and leaves two positions to manage. Eventually one side has to be closed, and closing the wrong side can turn a locked loss into a larger one.

Often a stop loss set before the trade is simpler. It defines the maximum loss in advance, and risk management rules such as a fixed share of the account per trade keep that loss small.

Common mistakes

• Treating a hedge as a way to avoid taking a loss.
• Forgetting that swaps and spread continue while both positions are open.
• Opening a hedge without checking margin, then facing a margin call on a flat position.
• Closing the profitable side first and leaving the losing side exposed.

Bottom line

Hedging pauses price risk, but it adds costs and does not turn a losing trade into a winning one. Check that your account allows opposite positions, how margin is charged and how swaps apply before you rely on it. A planned stop loss and sensible position size are usually the simpler tools. Only trade with money you can afford to lose. CFDs are complex, high-risk instruments.