Glossary
Hedging
Hedging is opening a position that offsets the risk of another, such as a buy and a sell on the same market.
What it means
In general trading, a hedge reduces risk. A trader holding one position may open an opposite or related one to limit losses. Prop firms focus on a narrower case: opposite positions on the same or closely related instruments across different accounts, which makes one account gain roughly what the other loses, whatever the market does.
Firms commonly ban hedging across accounts, whether across two of the trader's accounts, across firms or with another trader. Rules on hedging inside a single account differ: some firms allow it and some do not. Firms should define the rule precisely, and traders should check it before holding a buy and a sell at the same time.
Worked example
Illustrative case: a trader buys 5 lots of gold on one challenge account and sells 5 lots of gold on another at the same moment. Whichever way price moves, one account gains what the other loses, so one is likely to pass. That is cross account hedging, and firms that ban it can fail both accounts.
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