What is a Hedged Position?

A hedged position occurs when you open both a BUY and SELL order on the same instrument simultaneously. This strategy is used to protect against adverse price movements while maintaining market exposure. For example, you might hold a long position (BUY) in a currency pair while simultaneously opening a short position (SELL) to offset potential losses.

How Margin is Calculated for Hedged Positions

One of the key benefits of hedging is that the margin requirement is more efficient than holding two unhedged positions separately. Rather than calculating margin on each position individually and adding them together, the margin requirement for hedged positions is calculated as follows:

The total margin requirement equals the margin requirement of the position with the higher margin requirement.

This means you only pay margin once for the hedged pair, rather than paying twice for two separate positions. However, it’s important to note that other costs—such as swaps (overnight holding fees)—will still apply to both sides of your hedged position.

Working Example: GBP/USD Hedged Position

Let’s walk through a detailed example of how margin works with a hedged GBP/USD position:

Position Details

Margin Calculation

BUY Position (Long 1 lot GBP/USD):

• Contract Value = £100,000

• Margin Required = £100,000 × 3.33% = £3,330

SELL Position (Short 1 lot GBP/USD):

• Contract Value = £100,000

• Margin Required = £100,000 × 3.33% = £3,330

Total Margin for Hedged Position:

Maximum of the two = £3,330 (NOT £6,660)

By hedging these positions, you only pay margin once. If you held the same positions

separately without hedging, you would need to deposit £6,660 in margin. With the hedge, you only need £3,330—a 50% reduction in margin requirements.
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Important: Swaps on Hedged Positions

While margin requirements are reduced for hedged positions, it’s crucial to understand that swap charges (overnight holding fees) are NOT reduced. Swaps are charged independently on each side of your hedged position.
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Continuing with our GBP/USD example:

In this hedged position, you would be charged:
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Total Daily Swap Cost = -4.03 GBP - 4.25 GBP = -8.28 GBP per day

Both the long and short positions incur swap charges. Over extended periods, these charges can accumulate significantly, so it’s important to factor them into your hedging strategy.

Key Takeaways

• Hedged positions require only the margin of the higher-requirement side, reducing

your margin obligation by up to 50%.

• Swap charges apply independently to both the long and short sides of a hedged

position—they are not offset or reduced.

• The total cost of a hedged position includes both margin costs and accumulated swap charges over time.

• Always check the specific margin requirements and swap rates for your instruments on the xStation platform or our Margin and Swap tables.

Important Risk Disclaimer

While hedged positions reduce margin requirements, they do not eliminate market risk. During periods of high price volatility or unusually large spreads, hedged positions may still be closed due to insufficient margin. Additionally, hedging costs—including swap charges—may reduce profitability. Always ensure you understand the full costs and risks of any hedging strategy before implementing it.

For More Information

For detailed information on margin requirements and swap rates for all instruments, visit our website or check the Instrument Specification documents available at:

https://www.xtb.com/en/instrument-specification/documents
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You can also view margin requirements and swap rates directly in the xStation platform by selecting any instrument and reviewing its specifications by clicking on the ‘i’ information button.