Hedging

Hedging means deliberately taking positions that cancel some of the risk in an existing one. A direct hedge holds equal long and short positions in the same instrument (locking in current P/L); a correlation hedge offsets risk through a related pair (e.g. selling EURUSD against a long GBPUSD). Not all brokers allow direct hedging; US-regulated brokers (NFA) prohibit it. Hedging can lock in losses if mismanaged and adds cost via two-sided spreads and swap.