Forex brokers allowing hedging are plentiful, as almost all non-US regulated brokers allow this risk management strategy .
Since there are many choices for traders to consider, we have extensively researched the field for you, the results of which we set out in the list of the best Forex hedging brokers below.
Hedging Brokers At A Glance
- FXTM, Best all-around broker with high floating leverage and fast execution.
- FP Markets, ECN trading with leverage up to 1:500.
- Eightcap, Competitive pricing + excellent daily videos.
- BlackBull Markets, Best ECN trading environment, with scalping and hedging.
- AvaTrade, Highly regulated, choice of fixed or floating spreads.
Comparison of the Best Hedging Forex Brokers
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Regulators | CMA, CySEC, FCA, FSC Mauritius, FSCA | ASIC, CMA, CySEC, FSCA | ASIC, CySEC, FCA, SCB | FMA, FSA | ASIC, BVI, Central Bank of Ireland, FFAJ, FSCA, KNF, MiFID |
Year Established | 2011 | 2005 | 2009 | 2014 | 2006 |
Execution Type(s) | ECN/STP, Market Maker | ECN/STP | ECN/STP, Market Maker | ECN/STP, No Dealing Desk | Market Maker |
Minimum Deposit | |||||
Average Trading Cost EUR/USD | 0.1 pips | 1.2 pips | 1.0 pips | 1.3 pips | 0.9 pips |
Average Trading Cost GBP/USD | 0.2 pips | 1.4 pips | 1.2 pips | 2.0 pips | 1.5 pips |
Average Trading Cost Gold | $0.18 | $0.16 | $0.12 | $0.90 | $0.29 |
Trading Platform(s) | MetaTrader 4, MetaTrader 5, Proprietary platform | MetaTrader 4, MetaTrader 5, cTrader, Proprietary platform, Web-based | MetaTrader 4, MetaTrader 5, Trading View | MetaTrader 4, MetaTrader 5, cTrader, Trading View | Other, MetaTrader 4, MetaTrader 5, Proprietary platform, Web-based+ |
Islamic Account | |||||
Negative Balance Protection | N/A | ||||
| Visit Website | Visit Website | Visit Website | Visit Website | Visit Website |
FXTM
In Summary Best all-around broker with high floating leverage and fast executionI rank FXTM among the best Forex brokers for hedging due to its highly competitive commission-based trading fees. The Advantage account features raw spreads of 0.0 pips for a commission of $0.80 and $4.00 per 1.0 standard round lot. FXTM also has fast order execution with an average execution speed of 0.071 seconds. Additionally, traders can benefit from a cutting-edge price improvement technology that decreases trading fees by an average of $3.00 per round lot, applicable to 97.18% of orders.
VPS hosting allows 24/5 low-latency Forex trading, competitive leverage with negative balance protection, and a good choice of payment processors.
Pros & Cons
- Excellent commission-based Forex pricing environment and transparency
- Upgraded MT4/MT5 trading platforms plus proprietary mobile trading app
- Quality market research and educational content for beginner traders
- A highly regulated broker with a tier-1 license
- No cryptocurrencies and limited choice of commodities
FP Markets
In Summary ECN trading with leverage up to 1:500FP Markets has no trading restrictions and maintains a competitive trading infrastructure, including competitive leverage with negative balance protection. Traders receive a balanced asset selection, including ETFs, cryptocurrencies, and bonds. The commission-based pricing environment includes raw spreads from 0.0 pips for a commission of $6.00 per 1.0 standard round lot. It places FP Markets among the best Forex brokers for hedging on my listing.
The MT4, MT5, and cTrader platforms enable algorithmic trading, which FP Markets supports through VPS hosting for 24/5 low-latency Forex trading and deep liquidity pools. The excellent choice of payment processors includes 15+ cryptocurrencies.
Pros & Cons
- Choice of trading platforms and auxiliary trading tools
- Very competitive cost structure and excellent asset selection
- Low minimum deposit requirement and leverage of up to 1:500
- Well-regulated and trustworthy
- Availability of Iress geographically restricted
Eightcap
In Summary Competitive pricing + excellent daily videosHedging is a Forex trading strategy often used but equally misunderstood and poorly implemented. Eightcap allows hedging except for its clients at its ASIC-regulated subsidiary. Profitable hedging requires deep liquidity and superb order execution to capture price action in volatile trading conditions, which Eightcap provides and excels at with its innovative trading infrastructure.
Low trading fees and high leverage are equally important, which Eightcap offers. Since algorithmic trading solutions execute most hedging strategies, the best hedging Forex brokers invest in technology to ensure low-latency execution. VPS hosting, available at Eightcap for free for qualifying traders, is another vital tool.
Pros & Cons
- Low minimum deposit and high leverage of up to 1:500
- Competitive cost structure
- Excellent technology infrastructure and seasoned management team
- Daily research and quality educational content
- Limited leverage in some areas
BlackBull Markets
In Summary Best ECN trading environment, with scalping and hedgingWith 26,000+ assets and global coverage, including 200+ Forex pairs, BlackBull Markets ranks highly among my best Forex brokers for hedging listing. Traders benefit from competitive leverage with negative balance protection, while VPS hosting ensures 24/5 low-latency Forex trading. BlackBull Markets also offers API trading, allowing traders to connect advanced algorithmic trading solutions to the BlackBull Markets trading infrastructure.
BlackBull Markets creates a distinct competitive edge with its cutting-edge ECN trading environment, including deep liquidity sourced from data feeds of 66+ third-party providers. The competitively priced, commission-based ECN accounts feature trading fees as low as $4.00 per lot.
Pros & Cons
- ECN/NDD execution model with deep liquidity
- Institution-grade pricing for retail traders via proprietary price aggregation
- ZuluTrade and Myfxbook for social trading
- Leverage of up to 1:500
- Limited deposit options
AvaTrade
In Summary Highly regulated, choice of fixed or floating spreadsIf you are new to the trading game and looking for a forex trading app to assist you, AvaTrade may just be the answer. This highly regulated broker goes the extra mile to assist new traders and traders looking for hedging trading, in making a success out of their new journey. AvaTrade provides users with extensive training resources. These trading training resources consist of over 200 informative videos and 40 different courses that are available to all users via SharpTrader. These consist of valuable lessons that will guide new traders in making the right decisions. AvaTrade is licensed and regulated in Japan, Israel, the United Arab Emirates, South Africa, Australia, the British Virgin Islands, and Ireland where their headquarters are based.
Pros & Cons
- High quality educational offering via AvaAcademy
- Excellent choice of trading platforms catering to various trading needs
- Broad asset selection and cross-asset diversification opportunities
- Well-regulated and trusted broker with oversight from a central bank
- Trading costs competitive but nothing special
Hedging can be a useful part of a trading strategy if it is executed properly. It can also be a risk management technique in the hands of skilled traders. When the online brokerage industry launched, some brokers restricted hedging, and traders with US regulated brokers cannot hedge. The initial launch version of the MT5 trading platform, which is widely considered to be a failed successor to MT4, only allowed netting and had hedging features disabled. MetaQuotes, which developed the MT4 and MT5 trading platforms, listened to the negative feedback and realized its error, correcting it with an update that now supports both modes for the benefit of non-US traders. Today, most brokers allow hedging, but most retail traders do not fully understand hedging.
Dumb vs Smart Hedging
The most definitive difference within hedging is between a “dumb hedge”, which professional traders do not use, and a “smart hedge”. A dumb hedge means taking a buy and a sell position of equal size simultaneously in the same asset. This locks in any floating profit or loss, but commits to a day-to-day capital bleed, as swap rates on leveraged overnight positions will have to be paid on both positions. A dumb hedge serves no beneficial purpose, and traders benefit more by closing a trade rather than taking an opposing one of equal size in the same asset for the same net result. A “smart hedge”, where the trader takes a second position in a correlated asset, can however be an intelligent risk management strategy but will also increase overall risk. Therefore, it is best suited as a strategy for skilled traders who understand financial markets. An example of a smart hedge in Forex might be buying EUR/USD and selling GBP/USD due to the strong correlation between the two currency pairs. Stock traders might hedge by buying individual equities while selling the index of which they are a component. Options contracts are also heavily used in hedging portfolios.
Restrictions on Hedging
Traders should avoid brokers that place restrictions on hedging regardless of whether they want to use hedging or not. The best Forex brokers do not impose needless restrictions upon their clients. The hedging Forex brokers we reviewed above in detail ensure their traders have the tools to build an edge in the market. Before deciding on hedging as a strategy, traders should learn how to create smart hedges and forget about dumb hedges.
Types of Hedging Trading Strategies and Styles
The most definitive difference within hedging is between a “dumb hedge”, also known as a “simple hedge”, which professional traders do not use, and a “smart hedge”, also known as a “complex hedge”.
A simple hedge strategy means taking a buy and a sell position of equal size simultaneously in the same asset. This locks in any floating profit or loss, but commits to a day-to-day capital bleed, as swap rates on leveraged overnight positions will have to be paid on both positions. A dumb hedge serves no purpose, and traders benefit more by closing a trade rather than taking an opposing one of equal size in the same asset for the same net result.
A complex hedge strategy, where the trader takes a second position in a correlated asset, can however be an intelligent risk management strategy but will also increase overall risk. Therefore, it is best suited as a strategy for skilled traders who understand financial markets. An example of a smart hedge in Forex might be buying EUR/USD and selling GBP/USD due to the strong correlation between the two currency pairs if the British Pound is seen as more prone to weakness than the EUR/USD. Stock traders might hedge by buying individual equities while selling the index of which they are a component. Options contracts are also heavily used in hedging portfolios.
Complex hedge strategies can be divided into the following strategies or styles:
- In Forex, whether you are long and short of the same currency in two different pairs, or long and short of distinct but correlated currencies.
- Using an index or basket to hedge against a long or short trade in an individual asset.
- A cross-asset class hedge in correlated assets, for example being long of WTI Crude Oil while being short of the Canadian Dollar. Another well-known investment hedge is to hold part of your portfolio in bonds as well as stocks, typically giving some upside in bear markets.
- A long/short strategy within the same asset class, for example being long of 10 stocks you are most bullish on and short of 10 stocks you are most bearish on. This type of strategy is “market neutral” as the positions in the class overall are equally weighted, or nearly so. This is also the principle behind pairs trading.
What Types of Investments Can You Hedge with a Forex Broker?
The investments available for hedging depend on the broker, but the best Forex brokers for hedging will offer most asset classes to ensure clients can hedge portfolios properly.
The best Forex brokers for hedging will always offer the following assets:
- Forex
- Commodities
- Indices
- Equities
Some Forex brokers also offer options, futures, and cryptocurrencies. Therefore, Forex traders must know how they want to hedge their investments and then seek a Forex broker offering the assets necessary to execute a hedge-based risk management strategy. Hedging with synthetic assets, which some Forex brokers offer, is not ideal, as it may create ineffective hedges.
What Type of Account is Best for Hedging?
The best account for hedging is the same as the one for trading without hedging portfolios, but it may vary based on Forex brokers. Traders who trade with the best Forex brokers for hedging have the most competitive trading conditions in commission-based ECN trading accounts with NDD order execution and STP processing.
The reasons commission-based ECN trading accounts with NDD order execution and STP processing are the best for hedging include the following:
- Low trading fees, which are essential for any trading strategy.
- Fast order execution without broker interference, an essential requirement for hedging.
Hedging Trading Strategies - Pros & Cons
Using a hedging strategy has both pros and cons.
Pros:
- Diversification
- Potentially smoothing out drawdowns
- Potentially smoother equity curve
Cons
- Has a high chance to reduce overall profit
- Adds to trading costs
- May be pointless and likely to cause psychological overcomplication
Hedging Regulations
There is only one country that has hedging regulations which impact retail Forex / CFD traders. This country is the USA, which imposes a rule known as FIFO (first in, first out), which stipulates open trades in the same asset of the same size, can only be exited in the order in which they were opened.
The regulation is imposed by the National Futures Association (NFA) on all US-regulated Forex brokers.
The FIFO regulation is often cited as banning hedging in the USA. This is not really accurate for two reasons:
- The regulation only applies to trades in the same assets, which are simple (dumb) hedges. These hedges are pointless anyway. The regulation does not affect complex (smart) hedges.
- The regulation only applies to trades of the same size, so it is possible to hedge for example 95% of a position size, and to be able to operate freely without any FIFO problem.
Bottom Line
Simple, “dumb” hedging is pointless. It tends to be used as a way for inexperienced traders to avoid the pain of taking a loss. You are better off using hard stop losses and accepting losses will happen than to use simple hedging strategies in the same asset.
Complex, “smart” hedging can make sense, but is most effective in investing or long-term trading strategies and styles where the time horizon is months or years. This is because good hedges often need time to really “play out” and show their benefits. It is not likely to be a strategy that add much profit to a day or swing trader.
Where hedging can really help is in building trading strategies in stocks, where you are looking to pick stocks for outperformance or underperformance. Here, options on an underlying index can be used relatively cheaply to hedge downside risk. Alternatively, an equally weighted long/short equity strategy, if well picked, should generate profit regardless of what the wider market does.
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