Hedging

Hedging involves taking an offsetting position to reduce or neutralize the risk of an existing trade. In prop trading, the rules around hedging vary by firm and platform.

Types of Hedging

Direct Hedging

Buying and selling the same instrument simultaneously (e.g., long and short EUR/USD at the same time). This is allowed on MT4/MT5 but NOT on US-regulated platforms.

Correlated Hedging

Opening opposing positions on correlated instruments (e.g., long EUR/USD and short GBP/USD). This is generally harder for firms to detect and restrict.

Cross-Account Hedging

Going long on Account A and short on Account B on the same instrument. This is prohibited at virtually all prop firms.

Prop Firm Policies

• Most futures firms: Direct hedging is not possible (FIFO rules on US exchanges)
• Forex firms using MT4/MT5: Often allowed for direct hedging within the same account
• Cross-account: Universally prohibited and actively monitored

Why Cross-Account Hedging Is Banned

The strategy guarantees one account wins and one loses. Traders use this to game evaluations — the winning account passes the challenge while they abandon the losing one. Firms detect this through trade correlation analysis.

Legitimate Hedging

• Hedging a portfolio with index futures
• Using options to protect a directional position
• Reducing exposure ahead of a news event by partially closing a position