Hedging Explained: The Do's and Don'ts

Complete guide to hedging policies for Halcyon traders. Learn what hedging is, why it's prohibited, and the essential guidelines for maintaining account integrity.

4 min read

Hedging Explained: The Do's and Don'ts

4 min. read

last update: 08.17.2025

Hedging Guidelines for Halcyon Traders

At Halcyon Trader Funding, our mission is to support traders who exhibit steady, responsible trading practices. To ensure a level playing field and properly assess each trader's true abilities, we enforce clear restrictions on hedging within all our accounts.

What is Hedging?

Hedging occurs when a trader holds both long and short positions simultaneously on the same underlying asset. This includes taking opposing positions on instruments that represent the same market exposure.

Example:

Holding a long position in E-Mini NQ and a short position in Micro NQ simultaneously is considered hedging because both contracts represent exposure to the Nasdaq index (NQ).

Our Policy on Hedging

Hedging is strictly prohibited across all accounts and trading programs.

→ Traders must not hold opposing positions (long and short) on the same instrument or instruments tied to the same underlying asset simultaneously.
→ Trading different, unrelated assets in opposing directions is allowed (e.g., long gold and short crude oil).
→ The use of hedging strategies undermines the evaluation process by masking true risk management and trading performance.

Why Hedging is Not Allowed

Hedging can artificially stabilize an account by offsetting losses in one position with gains in another. This practice:

→ Obscures a trader's actual risk management skills
→ Masks genuine profitability and trading discipline
→ Makes it difficult to evaluate true trading performance and consistency
→ Undermines the integrity of the evaluation and funding process

Our goal is to assess traders on their ability to manage risk, make informed decisions, and achieve profitability without relying on offsetting positions.

Additional Guidelines

All traders are required to comply with CME Group's hedging rules. (For reference, see CME Rule 534)

While hedging the same underlying asset is prohibited, trading different instruments on unrelated markets or assets in opposite directions is permitted. However, over-reliance on hedging strategies can complicate performance evaluation.

Contract Size Policy: Micros vs. Minis

To maintain fairness and prevent manipulation of risk limits, traders are prohibited from trading both micro and mini futures contracts simultaneously within the same account.

Account Restrictions:

→ You must select and trade only one type of contract per account.
→ Either trade micro contracts exclusively (such as MES, MNQ, MCL), or trade mini contracts exclusively (such as ES, NQ, CL).
→ Holding or opening positions in both contract sizes at the same time is not allowed.

Examples of Violations:

→ Trading ES and MES contracts concurrently.
→ Holding positions in both NQ and MNQ contracts simultaneously.
→ Any combination of micro and mini contracts opened or held together within the same trading session.

It is acceptable to switch between contract sizes across different trading sessions, but overlapping positions of micro and mini contracts are prohibited.

Monitoring and Enforcement

Our platform uses systems to detect:

→ Opposing positions on the same instrument (e.g., long and short ES positions).
→ Concurrent exposure to both micro and mini contracts for the same instrument (e.g., ES and MES).
→ Any mixed contract sizes across all traded instruments.

Breaches of this policy may lead to:

→ Account disqualification (for evaluation or challenge programs).
→ Denial of payouts.
→ Permanent closure of trading accounts.

Summary

→ Holding opposing positions (hedging) on the same underlying asset is strictly prohibited.
→ Trading opposite positions on different, unrelated instruments is permitted.
→ Traders must choose to trade either micro or mini contracts within a single account and may not hold both contract types simultaneously.
→ Switching contract sizes between trading sessions is allowed, but overlapping positions in micros and minis are not permitted.
→ Compliance with CME guidelines and all Halcyon Trader Funding policies is required.

Violations of these rules can lead to account review, disqualification, payout denial, or account closure.

If you have any questions or need clarification, please contact Halcyon Trader Funding's support team.

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This document was last updated on November 24, 2024

RISK DISCLOSURE:

Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the investor’s initial investment. Only risk capital—money that can be lost without jeopardizing one’s financial security or lifestyle—should be used for trading and only those individuals with sufficient risk capital should consider trading. Nothing contained herein is a solicitation or an offer to buy or sell futures or options. Past performance is not necessarily indicative of future results. This is not an investment opportunity. You do not deposit any funds for investment. We do not ask for any funds for investment. At no time do you risk your own capital. There are no promises of rewards or returns.

All content published and distributed by Halcyon Trader Funding LLC and its affiliates (collectively, the “Company”) is to be treated as general information only. None of the information provided by the Company or contained herein is intended as (a) investment advice, (b) an offer or solicitation of an offer to buy or sell, or (c) a recommendation, endorsement, or sponsorship of any security, company, or fund. Testimonials appearing on the Company’s websites may not be representative of other clients or customers and is not a guarantee of future performance or success. Use of the information contained on the Company’s websites is at your own risk and the Company and its partners, representatives, agents, employees, and contractors assume no responsibility or liability for any use or misuse of such information.

CFTC RULE 4.41:

Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. No representation is being made that any account will, or is likely to achieve profits or losses similar to those discussed within this site, support and texts. Our course(s), products and services should be used as learning aids only and should not be used to invest real money. If you decide to invest real money, all trading decisions should be your own. SEE OUR FULL RISK DISCLOSURE ON OUR SITE.

GENERAL DISCLAIMER:

We encourage you not to blindly follow anyone’s trades, including ours. It’s your responsibility to conduct your own research and make your own decisions before placing any trades. We are not financial advisors, and nothing we present should be taken as investment advice. Trading carries significant risk, and most traders do not succeed. Our goal is to educate you by sharing our processes and tools, and to show you ways to potentially improve your trading. However, using any of the systems, platforms, indicators, or strategies we demonstrate does not guarantee success. Halcyon Trader Funding – Prohibited Conduct and Risk Management Policy To mitigate prohibited conduct, gambling behavior, and the exploitation of the simulated trading environment, Halcyon Trader Funding enforces the following policy: Any trading account that exceeds 250 total contracts (Micro or Mini) in a single trading day across all instruments will automatically be subject to review by our Risk & Compliance Team. If Halcyon Trader Funding identifies trading activity that, at its sole discretion, is determined to be related to prohibited conduct, we reserve the right to take the following actions: delete the trading day and any associated profits and/or restart the account and/or close the account. Repeat violations of this policy may result in a ban from using all or a portion of the Halcyon Trader Funding Site and Services, at our discretion. Our goal is to ensure a fair and productive trading environment for all traders.

AVAILABLE INSTRUMENTS:

Halcyon Trader Funding traders are allowed to trade only products listed on the following exchanges: CME, COMEX, NYMEX, and CBOT, or available through our program vendors or platforms.

CUSTOMER COMPENSATION DISCLOSURE:

All trades presented for compensation to customers should be considered hypothetical and should not be expected to be replicated in a live trading account. Any compensation may represent simulated accounts or live brokerage accounts. Testimonials appearing on this website may not be representative of other traders and are not a guarantee of future performance or success.