Hedging
Holding opposing positions to offset exposure — allowed within one account, but banned across multiple accounts or firms.
Definition
Hedging is the practice of holding two positions that offset each other's directional exposure — typically a long and a short in the same or highly correlated instruments. Within a single prop firm account, hedging is usually allowed: a trader can hold a long EUR/USD and a short EUR/USD simultaneously as a delta-neutral position. Across multiple accounts, hedging is almost universally banned: a trader who holds a long on one firm's account and a short on another firm's account creates a risk-free payout arbitrage at the firms' expense. The ban extends to 'cross-firm hedging' (opposite positions on two different firms) and 'account-group hedging' (multiple accounts on the same firm with offsetting trades).
Example
Why It Matters
Cross-account hedging is one of the most aggressively detected and severely punished rule violations because it is structural fraud against the firm's book. Even accidental hedging — a trader forgets an old position on one account and opens an opposing position on another — can trigger detection. Traders running multiple accounts across multiple firms should maintain a single master position log and verify no offsetting positions exist before entering new trades. The rule applies even when the accounts are in different family members' names if payment or IP address matches.