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

At XTB, margin for fully hedged positions is calculated based on the position with the higher margin requirement, rather than the combined margin of both positions. One of the advantages of holding a fully hedged position is the reduced margin requirement. 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. Because the long and short positions offset much of each other's market exposure, the overall market exposure of the hedged position is significantly reduced. As a result, only the higher of the two margin requirements is reserved.

This means only one margin requirement is reserved against your account for the fully hedged portion of the position. 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 (rather than £6,660)

For this fully hedged position, only £3,330 of margin is reserved, rather than £6,660 if both positions were margined separately. In this example, the required margin is reduced by 50%.

What if my hedged positions are not identical?

If the sizes of your BUY and SELL positions differ, only the matched volume is treated as hedged. Any remaining exposure is treated as an open position and requires additional margin.

For example, if your BUY position requires £3,330 of margin and your SELL position requires £4,100, the total margin reserved for the fully hedged position would be £4,100.

Important: Swap charges 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.

Continuing with our GBP/USD example:

In this hedged position, you would be charged:

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.

Although the market exposure is offset, you still hold two separate CFD positions. Each position therefore accrues its own overnight financing (swap), which is calculated independently.

Key Takeaways

• In a fully hedged position where both sides require the same margin, your required margin is approximately 50% lower than holding both positions separately.

• 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 volatility or significant spread widening, the value of your account equity can still change due to spread movements, swap charges and market conditions. If sufficient funds are not maintained, positions may be closed automatically. 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

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.

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