Hedging rule — A firm's policy on holding opposing positions at the same time, either in one account or across several.
How hedging rule works in prop trading
Within a single futures account, opposing positions usually net out rather than coexist, so the rule is often moot. It matters most across accounts: holding long in one funded account and short in another with the same firm guarantees that one account profits regardless of direction, which is why firms prohibit it as arbitrage rather than as a trading strategy.
Cross-firm hedging — long at one firm, short at another — is the version that ends accounts most often. It is detectable through shared risk-monitoring providers, and firms treat it as a deliberate attempt to extract a payout without taking market risk. It is also usually a violation of the good-faith clause even where hedging is not separately named.
Key points
- Within one futures account, opposing positions generally net rather than hedge.
- Hedging across your own accounts at the same firm is prohibited almost everywhere.
- Cross-firm hedging is detectable through shared risk data and treated as a serious violation.
- Correlated-instrument hedging — one index against another — is often covered by the same rule.
Also known as
- hedge restriction
- opposite positions
- locking positions
Frequently asked questions
Can you hedge across two prop firm accounts?
No. Holding offsetting positions across accounts, whether at one firm or two, is prohibited by essentially every firm and is one of the violations that most reliably results in closure of all accounts involved and forfeiture of profits.
Does hedging include correlated instruments?
Often yes. A long in one index future against a short in a closely correlated one is economically a hedge, and firms with a hedging rule generally read it that way even when the products differ.
Hedging rule is described here as a plain-language educational definition. Firms, platforms, and account programs may apply different conditions or calculations. Verify the current official terms before using this definition to make an account decision.