An account type that allows simultaneous long and short positions in the same instrument, each held as a separate ticket with its own entry, stop and result.
Hedging mode is the default outside the United States and is what most metatrader users are familiar with. Each trade is its own ticket, so a trader can be long two lots from one setup and short one lot from another without the platform netting them.
The economics are less flattering than the display. A fully offsetting long and short has no directional exposure but still pays the bid-ask-spread twice and usually pays rollover on both legs, so the combined carry is negative. Brokers also differ on whether both legs consume used-margin.
Its legitimate uses are mostly operational: running two systems independently in one account, or keeping a long-term position while trading around it. Its common illegitimate use is avoiding the act of taking a loss.
Example: long 1 lot and short 1 lot of EUR/USD with a 0.8 pip spread costs about $16 in spread to open and close both, plus a net negative swap each night, to hold a position worth nothing either way.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Rolling a futures position forward. Every futures contract has an expiry date, so a trader who wants to stay in the market closes the front-month contract and opens the next one. That swap is the roll, and the two contracts rarely trade at the same price.
Educational only, not advice. Spotted an error? Post in Site Feedback.