Hedging is a common trading strategy used by forex traders. But what are the essential aspects that need to be considered when it comes to brokers for hedging? Find out more in this article.
There are a growing number of forex brokers in the world, and choosing one is not exactly easy because not all brokers can accommodate every trader's needs. One of the best ways to do it is to pay attention to what trading strategy you use. As a trader, it is in your best interest to find a broker that offers the most profitable forex trading condition that supports your strategy.
One such strategy is called hedging, typically done by opening at least two opposite positions. Hedging aims to balance out a losing position with another position. There are a few ways of hedging, namely hedging in the same currency pair, hedging in different currency pairs, hedging with multi-assets, and so on. Each trader usually has their own preferences regarding these methods.
If you prefer to use a hedging strategy, here are some recommended brokers to trade with:
- IC Markets: Well-regulated with notable raw spread accounts, allows hedging customization on the MT5 platform.
- FBS: Probably the most popular retail broker with highly diverse features and trading conditions to offer.
- Exness: Known for instant withdrawals and reliability in executions.
- Pepperstone: Launched a breakthrough in its Razor account.
- OctaFX: ECN-like conditions with affordable trading costs.
How does each broker above manage to be capable in providing the best environment for hedging? Let's discuss below.
1. IC Markets
IC Markets is a global ECN broker that is widely known for being an ideal broker for various trading strategies, including hedging practices. With a $200 minimum deposit to start with, this broker offers a relatively low spread from 0 pips and a commission of just $3 per lot. Other than that, IC Markets also provides a Swap-Free account.
IC Markets is an online forex broker operating under the company of International Capital Markets Pty Ltd. Traders under the Australian jurisdiction are provided with the trading service of IC Markets AU that is headquartered in Australia and licensed by the Australian Securities and Investments Commission (ASIC).
On the other hand, non-Australian traders who open an account in this broker are registered under IC Markets SEY that is based in Seychelles, and regulated under the Seychelles Financial Services Authority (SFSA). The dual operation is a result of the relatively new rules from ASIC that prohibit their regulated broker to offer trading services outside Australia.
Classified as an ECN broker, IC Markets provide clients with MetaTrader 4, MetaTrader 5, cTrader as platform trading options. This broker also follows market trends to include Cryptocurrencies as one of its products, enriching its already wide selection of trading assets that include Currencies, Indices, Metals, Energies, Softs, Stocks, as well as Bonds.
The minimum deposit in IC Markets is in the middle range compared to other ASIC-regulated brokers, as it reaches $200 for every client. Market analysis materials are also prepared regularly for trading insights on IC Markets's official website, proving their competence to serve their traders with important contents created by market experts that work specifically for them.
For payment methods, IC Markets allows funding and withdrawal via wire transfer, credit card, PayPal, Skrill, Neteller, FasaPay, UnionPay, as well as Bitcoin via BitPay. The more interesting aspect from this broker is its multi-base currencies that include USD, AUD, EUR, GBP, SGD, NZD, JPY, CHF, HKD, and CAD.
As the trading technology in IC Markets is highly equipped with co-located servers and extremely low latency (especially on cTrader), the broker is widely known for its capability in hosting traders with the special needs for high-frequency trading as well as scalping.
To sum up, IC Markets is a fitting destination for active traders looking for a well-regulated broker. IC Markets is also flexible in terms of base currency and payment methods, signaling their commitment to welcome traders beyond their home country. As of late 2019, IC Markets provided their website in 18 international languages including English, Korean, Indonesian, French, Spanish, Italian, Malay, German, and Chinese.
2. FBS
FBS broker is one of the globally recognized brokers with a variety of benefits for hedging. With only a minimum deposit of $1, you can start trading and enjoy the benefit of a low spread starting from 0 pips. It should be noted that the minimum spread varies from one account to another. For hedging purposes, it's better to trade with the lowest spread possible for you will be charged for more than one order every time you hedge.
Since 2009, the action of FBS Holding Inc. or known as FBS in the world of forex trading has been recognized by various international institutions. With clients reaching 14 million as of 2019, FBS has received the title of Most Transparent Forex Broker 2018, Best Investor Education 2017, Best Customer Service Broker Asia 2016, IB FX Program, and many others.
FBS is regulated by FSC Belize and CySEC Cyprus. This broker has been trusted by millions of traders and 370 thousand partners from various countries. Based on their data, FBS garners about 7,000 new traders and partner accounts every day. And, 80% of the clients stay in the FBS for a long time. No wonder the broker is growing rapidly due to the incredible growth in the number of clients.
Trading products offered by FBS range from forex, CFD, precious metal, and stock. For forex trading, CySEC-regulated FBS offers leverage up to 1:30 on Cent and Standard Accounts. Clients who want to try higher leverage than that can alternatively register an account under FBS Belize.
FBS spread begins from 0.5 pips for Pro account type and from 0.7 pips for Standard and Cent accounts. On a standard account, volume orders can be made from 0.01 to 500 lots. Therefore, this account is recommended for experienced traders.
Whereas on Cent Accounts, volume orders can be carried out with a maximum of 500 cent lots or the equivalent of 5 standard lots. Cent Accounts involve a different level of risk. FBS recommends Cent Accounts for beginner traders. All account types support the following trading instruments: 36 Forex pairs, 8 metals, 3 energies, 11 indices, 127 stocks, 5 crypto pairs.
Before plunging into the real forex market, traders can practice with FBS Demo Account which consists of two types, i.e Standard and Cent.
FBS uses the MetaTrader 4 and MetaTrader 5 platforms. They offer them on Windows and Mac as well as Android and iOS mobile. These platforms provide a trading experience at traders' fingertips, allowing traders to progress as a trader anywhere at any time.
MetaTrader platforms also have a variety of mainstay features, including the possibility to create, buy, and use expert advisors (EA) and scripts, One-click trading and embedded news, technical analysis tools, the possibility to copy deals from other traders, hedging positions, and VPS service support.
Another advantage provided by FBS is a deposit bonus of 100% for clients who fulfill certain requirements. The process of FSCing and withdrawing funds can be run easily and quickly. Based on clients' testimonies, each process usually takes no more than 3-4 hours, except on holidays.
Traders also have the opportunity to develop a side business when trading with FBS, namely as an Introducing Broker (IB) or Affiliate. The FBS partnership system provides partner commissions that are already in 3 level positions. Only by introducing new clients to FBS according to certain procedures, traders can earn extra income.
Traders will also get trading education experience at FBS. They have prepared a comprehensive forex course. The course consists of 4 levels: beginner, elementary, intermediate, and experienced. Traders can take courses that will turn them from newbies to professionals. All materials are well-structured. Besides, FBS provides various forex analyzes, webinars, forex news, and daily market analysis that can be accessed easily on their site.
Traders can access the FBS website with many language choices. Of course, this will increasingly provide comfort for traders. Available languages include English, Italian, French, Portuguese, Indonesian, Spanish, and others. Live chat support is also provided 24 hours 7 days a week.
In conclusion, FBS is a widely known broker among retail traders around the world. It continually grows to become a preferred broker because of flexible trading conditions that enable its clients to trade with various instruments, low deposit, and other trading advantages.
3. Exness
Exness is a highly reputable broker that allows its clients to hedge. With a low spread starting from 0.1 pips, this broker supports hedging in both MetaTrader 4 and 5 platforms. In fact, Exness is well-known for its focus on delivering what really matters for its clients' trading activities without offering too many side services like bonuses and promotions.
The choice of broker is adjusted to the needs of each trader. If you are a trader who only needs a basic platform and trading features with the best attributes, then Exness can be your best choice.
Exness covers its lack of feature variations with other advantages like low spreads starting from only 0.1 pip. This is very suitable for traders who use scalping strategies (Scalper). Spreads on major pairs in certain account types can also be as low as 0.0 pip, depending on market conditions.
Not only that, but traders can also enjoy other advantages such as automatic fund withdrawals. Exness processes the majority of client withdrawals instantly, without manual checks; however, withdrawals may be subject tos depending on the payment provider or method of choice.
The safety of traders' funds is also guaranteed as Exness is one of the European-based STP/ECN brokers. Exness's ability to become an official partner of the Real Madrid soccer team for 3 years, starting July 2017, also provides evidence that the company has high solidity.
Deposits and withdrawals may be made 24 hours a day, 7 days a week. However, it is important to note that the company shall not be liable fors in processing deposits and withdrawals if suchs are caused by the payment system.
Traders do not need to worry about transaction fees when depositing and withdrawing. Exness doesn't charge any transaction fees to traders even though some charges may be incurred depending on the payment provider of choice. A variety of payment methods are provided for traders, including Wire Transfer, Bank Card, Neteller, Skrill, and many others.
The financial reports and metrics on the Exness website are audited quarterly by Deloitte, one of the four largest public accounting firms globally.
Moreover, Exness is one of the mote transparent brokers in the online trading industry. Traders can find out all information about this company on the website, such as trading volume, number of active clients, client deposits, company funds, and many more.
The platforms provided by Exness vary in MetaTrader 4, MetaTrader 5, Web, and Mobile platforms. This makes it easy for traders when trading on Exness, as they can also access Exness platforms anywhere and anytime.
Over the years, Exness has developed into a broker that attracts traders. Trader's trust is further enhanced by its compliance with financial regulations like the FCA and CySEC.
One measure of client confidence can be put on the trading volume. By December 2018, their clients' monthly trading volume reached USD348.4 billion and active traders around the world surpassed 50,342.
Through the program offered by Exness, traders also have the opportunity to earn extra income by becoming their partners. From the Introducing Broker (IB) program, partners can earn up to 33% spread commission from every new client that registers with them.
Additional income can also be obtained from Exness Partners. Traders can get a spread commission of up to 25% per transaction made by traders who register through an affiliate link.
When trading with Exness, clients can also make use of its free VPS hosting services. A VPS (Virtual Private Server) offers increased reliability and stability for traders as they can maintain their trades and expert advisors without interruption in the event of unexpected technical issues, such as internet or electricity downtime.
From the review above, it can be concluded that Exness is a favorite broker for traders because of low spreads and flexible account types. This condition is very suitable for traders with limited funds but is in need of more opportunities to get maximum profit. This broker is also well known for its maximum support on both new and existing partners.
4. Pepperstone
Like previously mentioned brokers, Pepperstone is known to be supportive of various trading strategies. This broker explicitly expresses that they're available for any hedging users in their FAQ section. With a total of 61 currency pairs to choose from, traders can trade in Pepperstone while enjoying the benefits of low spread starting from 0 pips and a competitive commission of $2.50 per lot. The trading platforms provided are MetaTrader and cTrader.
Pepperstone was founded in 2010 by a team of experienced traders with a shared commitment to improve the world of online trading. Based in Melbourne, Australia, they grew to become one of the largest forex brokers in the world. If traders want to find a broker that provides low spreads, fast execution, and award-winning support, then the answer is Pepperstone.
Pepperstone has a strong legality guarantee because it has been licensed by the Australian regulator ASIC and FCA. Traders' funds can be deposited in segregated accounts at top Australian banks, one of which is the National Australia Bank (NAB). Therefore, the safety of funds is not a concern if a trader chooses to open an account in Pepperstone.
They succeeded in collaborating with 23 top banks to bring Bid to investors instantly via optical fiber. This allows all orders to be executed 100 percent automatically with low latency up to 0.05 milliseconds, without dealing desk intervention and requotes, as well as with super low trading costs.
Trusted by over 73,000 traders around the world, Pepperstone processes an average of USD12.55 billion of trading volumes every day. Because of that, they have many awards such as:
- The Best Global Forex ECN Broker 2019 and Best Forex Trading Support-Europe
- Best Australian Broker and Best Trading Platform 2018 by Compareforexbrokers.com
- Best Forex ECN Broker, Best Forex Trading Support, and Best Forex Trading Conditions by UK Forex Awards 2018
With the many rewards gained, Pepperstone hopes to attract more and more traders from all over the world. The rising performance of Pepperstone is not only due to the super-tight spreads and fast execution that it provides, but also because many traders are interested in trading with deposits in currencies other than US Dollars.
For this reason, Pepperstone is one of the most market-responsive brokers because it is willing to accept deposits in 10 currencies, which include AUD, USD, EUR, CAD, GBP, CHF, JPY, NZD, SGD, and HKD.
Trading in Pepperstone would allow traders to choose between 11 trading platforms: MT4 for desktop, MT4 Mac, MT4 iPhone, MT4 Android, MT4 iPad/Tablet, MT5, WebTrader, cTrader WebTrader, cTrader cAlgo, and cTrader Mobile. The choice of trading platforms may seem confusing to novice traders, but actually, it is very useful because it has fast execution.
When trading forex, traders can enjoy raw spreads from 0.0 pips on Razor accounts, over 61 currency pairs, and commission-free account funding on a wide range of deposit options. In addition to currency pairs, Pepperstone provides many types of trading instruments, including CFDs for indices and shares, commodities, and cryptocurrencies.
Instruments in commodity trading are pretty much diversified. Not only metal, gold, and silver, but traders can also trade with soft commodities such as cotton, sugar, coffee, cocoa, and orange juice. Pepperstone also provides trading on energy (oil and gas).
There are two types of accounts provided by Pepperstone, namely Razor accounts, and Standard accounts. If you area beginner, it is recommended to choose a Standard account with an average EUR/USD spread of 1.0-1.3 pips and free commission.
Those with particular trading styles such as scalpers and algorithmic traders may enjoy the lower cost setup traditionally seen in a Razor account, with a commission from AUD7 round turn of 100k traded. You can start trading with a minimum lot of 0.01 (micro) and 1:400 leverage.
As a Pepperstone client, a trader can fund and withdraw with alternative methods including Visa, Mastercard, POLi internet banking, bank transfer, BPay, PayPal, Neteller, Skrill, and Union Pay.
If you are new to trading or looking to practice your trading strategies in a risk-free environment, you can create Demo Account in Pepperstone. But if you are an experienced trader or prefer to learn by doing, Pepperstone provides a Live Account that allows you to trade with live executions and pricing.
Traders can also follow and copy strategies from popular traders using third-party services while learning how to improve their trading abilities. Pepperstone has partnered with a range of social trading platforms that traders can choose from, such as Myfxbook, ZuluTrade, Mirror Trader, MetaTrader signals, and Duplitrade.
5. OctaFX
OctaFX is a widely known broker, especially in the Asia-Pacific region. Here is their official statement regarding hedging:
We allow scalping, hedging, and other strategies if the orders are placed in accordance with our Customer Agreement. However, please note that arbitrage trading is not allowed.
To support hedging users, the broker offers quite a low spread starting from 0.2 pips with no commission and a minimum deposit amount of $100. Not only that, but OctaFX also provides some useful tools such as automated trading features for MetaTrader 4, and allows the use of expert advisors.
5 Aspects to Choose Brokers for Hedging
Opening more than one position might result in a higher spread. By having to watch over a few positions at once, hedging can be considered quite complicated. This is why forex brokers are essential for traders with a hedging strategy.
At least five aspects need to be considered in choosing a forex broker for hedging:
1. Regulation
First off, you must make sure that the broker is authorized by a hedging-friendly regulator. That being said, not all regulators support hedging practices, especially those from the US.
In 2009, the National Futures Association (NFA) imposes a FIFO (First In First Out) rule for every trader's transaction to prevent them from the risks of overtrading. With this rule, traders cannot open long and short position in a single account. So if you want to open a second position with the same currency pair, you must close the previous one before opening another. Therefore, this makes hedging impossible in NFA-regulated brokers.
If you want to use a hedging strategy, you must avoid trading with US-regulated brokers that do not operate outside of the US. In fact, there are many regulated brokers that you can consider, namely the FCA-regulated brokers or those that are regulated by ASIC. Other than that, you can also consider US brokers that expand their reach and are regulated in other countries.
2. The Broker's Policy
Apart from the regulation, it is also crucial to make sure the broker itself doesn't prohibit hedging practices. This is important because even brokers that are not regulated by the NFA or CFTC might not allow their clients to hedge. So, you must first check this information from the broker's official website or ask directly to their client support.
Other than that, some brokers are not regulated by the NFA or CFTC, allow hedging, but impose certain limits. This type of broker usually allows hedging under normal conditions but doesn't allow it on trading accounts that are registered in the bonus programs.
Lastly, some brokers could allow hedging but tend to automatically cancel the order if a trader closes the position just after opening it.
3. Spread
Many traders would like to choose a broker with low spreads, including traders that use a hedging strategy. This is mainly because low spreads can reduce trading costs, which is very advantageous especially if you're hedging and opening several positions at once.
It is common knowledge that spread should be taken into account in your risk management. So, it would be better to choose a forex broker that provides floating spreads with a minimum range of 0-2 pips per transaction. Forex brokers with 5-digit pricing are also preferable as they normally can provide tighter spreads.
4. Execution
If your hedging strategy involves pending orders, then the speed and accuracy of execution are critical. Imagine if you have placed a Buy and Sell Stop for hedging, but one or both of these orders is subject to slippage. The well-prepared strategy will be unsuccessful or brings less profit. There is a possibility of slippage during extreme market volatility, or when there is a release of important economic data or other fundamental news.
Moreover, the problem with execution lies with requote and lagging, both of which also depend on the broker's execution speed and accuracy. However, it is actually quite impossible to know how good the broker's execution service is without actually testing the live platform. Thus, you can only test this aspect after you register an account. Otherwise, you may specifically choose brokers that are well-known for their no slippage and no requote policies.
5. Trading Platform
Last but not least, it is vital to check the trading platforms supported by the broker. If you want to hedge with various methods (same currency pair, different currency pair, or across multiple assets), avoid brokers that don't allow hedging in MetaTrader 5.
Although currently MetaTrader 4 is still commonly used by traders, there is a possibility that brokers will focus more on MetaTrader 5 in the following years. MetaTrader 5 does enforce the FIFO rule, but some brokers activated the hedging mode in the platform. So it would be safer if you can find a broker that supports hedging for MetaTrader 4 and MetaTrader 5.
Conclusion
Due to the nature of hedging, you must consider several things before you choose a broker. Because hedging requires you to open two or more positions at once, you must try to reduce the trading cost as much as possible, namely by searching for brokers with low spread and reliable order executions. Keeping this cost down can be really impactful for your overall hedging success.
In conclusion, the success of hedging is not determined by your trading skill only, but also by the support from the broker. That is why you should think wisely before you choose which broker to use.
10 Comments
Nov 6 2021
Is it possible if traders doing hedge funds at offshore forex brokers?
Nov 9 2021
It totally depends on the broker's terms and services. But my question is, why do you choose an offshore broker for hedging? I think it's too risky. Find a broker with good regulations such as listed above. You'll never regret it!
Dec 10 2021
Why does the U.S ban hedging in the forex market?
Dec 21 2021
Nicole: Hedging was banned in 2009 by CFTC chairman Gary Gensler along with the FIFO rule and leverage was reduced to 50:1 for US Forex brokers. As I know, the stated purpose of these rules was to “protect” new traders from blowing up their accounts. As with many government regulations, the effect was negligible and had the unintended(?) consequence of driving much of the business offshore and some FX brokers went out of business.
Apr 11 2022
Most and almost all brokers from the USA do not allow for hedging. What is the reason?
Apr 13 2022
Melanie Diaz: The NFA outlined two chief concerns about hedging. The first one is that it eliminates any opportunity to profit on the transaction. The other one is that hedging increases the customer's financial costs
Apr 12 2022
The article is mostly correct. As a Muslim trader who uses a hedging system, the swap free feature is very useful.
Apr 18 2022
Abbasov: Hi-five! I also feel the same benefits as you!
Apr 26 2024
About the regulation that imposed in the article that In 2009, the National Futures Association (NFA) imposes a FIFO (First In First Out) rule for every trader's transaction to prevent them from the risks of overtrading. With this rule, traders cannot open long and short position in a single account. So if you want to open a second position with the same currency pair, you must close the previous one before opening another
Can anyone give me some example of FIFO rule with simple? And what factor that FiFO made us cabnot do the Hedging? Thank you
Apr 29 2024
Let me explain to you about your question! Regarding the regulation mentioned in the article, back in 2009, the National Futures Association (NFA) introduced a FIFO (First In First Out) rule to safeguard traders against the perils of overtrading. This rule dictates that traders cannot hold simultaneous long and short positions in the same account. Essentially, if you wish to open a second position with the same currency pair, you must first close the existing one.
To illustrate the FIFO rule simply, let's say you open a buy position (long) for 100 units of EUR/USD. Later, you decide to open a sell position (short) for 50 units of EUR/USD. Due to the FIFO rule, you'll be required to close the initial buy position before you can open the sell position. This ensures that trades are settled in the order they were initiated.
As for why FIFO prevents hedging, it's because hedging typically involves opening both long and short positions simultaneously to offset potential losses. Since FIFO prohibits holding opposite positions concurrently, it effectively limits the ability to hedge within the same trading account.