Web Trader MT5
Understanding the difference between single-sided and hedged margin tells you what to check before you hold opposing positions in gold, and why your required margin may not fall when you expect it to.
Have you ever opened a sell position to offset a buy only to find that your required margin has not dropped at all? Opening buy and sell positions does not mean that the margin requirement will be calculated in the same way for all gold symbols, XAUUSD247, for example, may be treated differently from standard gold.
Hedged margin can reduce the requirement on the matched part of opposing positions, while single-sided margin calculates the requirement strictly from the bigger side without any offset.
Establishing which method applies is important before taking a locked or hedged position. Let’s take a look at a worked example of the calculation for these two methods. Keep in mind that neither methodology reduces the underlying market risk of a position.
Quick Answer
Hedged margin gives you a lower rate on the matched (locked) portion of opposing positions, while single-sided (gross) margin is calculated on the larger side only, with no offset for opposing positions. The exact calculation always depends on the trading rules of the symbol. These are leveraged products and losses can exceed the amount you deposit.
What Is Hedged Margin?
A hedged margin lowers the margin requirement on the part of a position offset by an opposite position. This method is used when you have buy and sell positions in the same instrument, giving you a matched portion.
Platforms might therefore offer a lower margin requirement for those locked positions, as these opposing positions offset each other’s immediate directional risk. Any unhedged exposure remaining is then margined at the standard rate.
While this offers margin efficiency, it doesn’t mean hedging removes trading risk. Some platforms calculate the margin using the Weighted Average Price (WAP) of the aggregated positions.
Institutional margin methodology guides illustrate that netting and margin offset are common practices in standardized derivatives. But they require strict platform rules to be applied correctly.
What Is Single-Sided (Gross) Margin?
Single-sided or gross margin determines the requirement based on the larger side of opposing open positions, with no offset for the matched part.
In gross margin trading, the platform only sees your total buy volume and your total sell volume. The higher of the two is used as the basis for your margin requirement. This method does not automatically reduce margin for opposing positions as the system measures gross exposure instead of the net or matched exposure.
So don’t think that opening an opposite position will immediately free up your required margin. CFTC rules recognize gross-basis margining for certain customer accounts, where margin requirements are calculated on a gross basis under applicable clearing rules.
Why Some Gold Symbols Use One Method and Not the Other
The margin methodology is defined by the trading rules attached to the individual symbol, so you can have two gold instruments with entirely different calculations.
Even if the symbols are tracking similar gold prices they can have their own margin rules. Whether a hedged margin is available is determined by the platform or symbol specifications.
For example, if you would like to understand what XAUUSD247 represents, you should refer to the contract specifications for the relevant instrument before considering any opposing positions. Knowing how is margin calculated on gold lets you anticipate the free margin remaining in your account once your positions are open.
A Simple Worked Example
The easiest way to see the difference is to calculate the margin required for the same opposite positions in each method.
Example Position
Let’s say, you open two opposite positions for a gold symbol.
- Buy position: 2 lots of XAUUSD247
- Sell position: 1 lot of XAUUSD247
Here, the matched amount is 1 lot (since 1 buy offsets 1 sell). The remaining larger-side exposure is 1 lot (the extra buy). For this illustrative example, we will assume the standard margin rate is $1,000 per lot. Hedged margin requirements may vary depending on the platform, instrument, and applicable terms. For example, some platforms may require no additional margin on the matched portion, while others may apply a reduced margin rate.
Hedged Margin Calculations
- Matched portion: 1 lot ($0 margin required).
- Unmatched portion: 1 lot ($1,000 margin required).
- Total margin required: $1,000.
Single-Sided Margin Calculation
- Larger position: 2 lots (Buy side).
- Margin calculated on that side: 2 lots x $1,000 = $2,000.
- No offset for the opposing matched position: The 1 lot sell is ignored for margin purposes.
- Total margin required: $2,000.
What the Example Shows
The same positions require substantially different margin depending on which calculation method applies.
| Calculation Method | Required Margin |
|---|---|
| Hedged Margin | $1,000 |
| Single-Sided Margin | $2,000 |
Note: All figures used above are strictly illustrative and do not represent actual margin rates applying to XAUUSD247.
What This Means for Your Trading Strategy
Hedging may reduce margin requirements where the relevant symbol is subject to hedged margin. Please check the applicable contract specifications before assuming that reduced margin applies.
You must check the symbol’s contract and margin specifications before assuming that a buy and sell position automatically gets a margin offset. Knowing how the calculation impacts your free margin is crucial for managing your account, particularly if you are adhering to the gold trading exposure limits explained in your personal trading plan.
Even a hedged position can be very costly and risky. You need to factor spreads, cost of financing, volatility and fast price movements. Margin requirements can directly impact your ability to maintain other open positions. If your available margin falls below the required level, positions may be closed automatically under the provider’s terms and not necessarily at a level you would choose. Losses can exceed the amount you have deposited. A hedged position on reduced margin is not protected from close-out.
A higher margin efficiency does not always mean a reduction in total trading risk, because leverage can magnify both gains and losses. If you’d like to see how these dynamics work in real-time, then you might want to review the contract specifications on the STARTRADER platform before testing out your next strategy.
FAQs
Single-sided margin is a margin calculation method that computes the margin requirement based on only the larger side of offsetting open positions. In this gross margin model, the matched portion of your buy and sell trades is not discounted or netted out.
The hedged margin is a way of calculating margin where the matched portion of opposing buy and sell positions is subject to a lower margin requirement. And because the directional risk is temporarily neutralized, the platform needs less capital to hold the locked portion of the trade.
Hedging will influence your required margin depending on the methodology in place for the gold symbol you are trading. If the symbol uses a hedged margin, your requirement might be lower. If it uses a single-sided margin, opening an opposite position will not decrease your required margin.
The margin rules are entirely dependent on the contract specifications of the instrument and the trading platform setup. Gross margin models are required by some liquidity providers and some regulations, which is why not all gold symbols offer a hedged margin offset.
Conclusion
Single-sided and hedged margin employ completely different methods for computing required capital on opposing positions.
Hedged margin, however, applies less than full treatment to the matched part of a trade, while single-sided margin simply takes the larger side of a trade as the basis for the margin requirement.
Since the methodology is based on the trading rules of the specific symbol, it is crucial to check the relevant specifications before opening opposing XAUUSD247 positions. Knowing how this calculation works allows you to properly evaluate available margin and prevents assumptions about the effect of hedging on your account.
Finally, remember that margin efficiency does not eliminate market, financing, spread or leverage risk.
CFDs are complex financial instruments and carry a high risk of losing money rapidly due to leverage. You should ensure you fully understand the risks involved and carefully consider whether you can afford to take the high risk of losing your money before trading.
This content is provided for educational and informational purposes only. It does not constitute investment advice, financial guidance, or a recommendation to trade any financial instrument.
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