What is a hedge account?

What is a hedge account? How do brokers engage in hedging? I’m curious about the practical aspect "

There are several examples of why you would hedge currencies, here is one of them…
You have a company that sells widgets. It costs you $10 (USD) to make a widget and you sell it for $15 in the USA to make a profit. Simple and straightforward so far.
Now imagine you start selling the widget overseas. Now you have to worry about currency conversion rates because although the price you sell the widget for overseas is a fixed value in their currency (EUR, CAN, GBP etc…) due to the currency market fluctuations the amount of USD you get every time you sell a widget varies. So what do you do? On small amounts you just suck it up but on million dollar amounts what you do is to take out a position on the currency markets for GBP/USD or whatever currency you are selling them in. If you do it right then you will find that when the currency conversion rate shifts what you lose on the sale of the widgets you win on the markets or the other way around.
In effect it is a way to cancel out the currency pair movements to leave you with a fixed profit just like you would if you sold your widget for USD without having to change prices every minute or so.

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it generally refers to an account on which “hedging” (holding simultaneous long and short open positions on the same instrument) has not been disabled by the broker for legal reasons (these vary from country to country, regulator to regulator and even sometimes according to where the account-holder lives, regardless of the brokerage)

that’s a different use of the word “hedging,” referring typically to the broker’s laying off of their own net liabilities with an independent liquidity provider - this sometimes happens but far more often not, even when the brokerage claims that it does

it’s a hugely controversial issue in this forum

i can’t add to what i said in these posts/threads -


Hellooo! :slight_smile: The others have explained it very well already, but I guess if you also want more information on this, you can check this out. :blush: