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Forex Hedge Calculator

Size a hedge in a correlated instrument and see how much of the original risk it removes — and how much remains.

Contract specs: 1 lot = 100,000 units, 1 pip = 0.0001

Standard forex lots are 100,000 units of the base currency. Check the contract specification in your broker's platform (MT4/MT5: right-click the symbol → Specification).

Your EUR/USD position
lots

$10.00 per pip per lot.

EUR/USD vs GBP/USD, from −1 to 1.

pips

A typical day. Daily ATR works well.

pips

Same period as the first range.

Hedge size

0.70 lots

Sell GBP/USD (exact 0.7000)

Risk reduction

47.3%

Risk left

52.7%

of the unhedged risk

Hedged swing

$368.75

on a typical day

Unhedged swing

$700.00

1.00 lots EUR/USD alone

Show the math
  1. Daily risk A per lot = EUR/USD range × pip value70 × $10.00 = $700.00
  2. Daily risk B per lot = GBP/USD range × pip value85 × $10.00 = $850.00
  3. Minimum-variance hedge = lots × |ρ| × risk A ÷ risk B1.00 × 0.85 × $700.00 ÷ $850.00 = 0.7000 lots
  4. Risk left = √(1 − ρ²)√(1 − 0.85²) = 52.7% → reduction 47.3%
  5. DirectionPositive correlation → opposite direction: sell GBP/USD

Correlations change over time and can break down in the conditions you are hedging against. A hedge reduces risk; it does not remove it.

Rates from ECB, gold-api.com, CoinGecko, FX reference 2026-10-14, checked 02:42 UTC. Use your broker's live quote to trade.

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Quick answer

The minimum-variance hedge size = lots × |correlation| × (daily range A × pip value A) ÷ (daily range B × pip value B), traded opposite to your position when the correlation is positive. Even a correctly sized hedge leaves √(1 − ρ²) of the risk: at a correlation of 0.80 about 60% remains, so the hedge removes about 40%.

Worked examples: Risk management

What is the Forex Hedge Calculator?

A correlation hedge offsets the risk of one position with a position in a related instrument. If two instruments tend to move together (positive correlation), you hedge by trading the second one in the opposite direction; if they tend to move in opposite directions (negative correlation), you hedge by trading it in the same direction.

The calculator sizes the minimum-variance hedge: the size of the second position that removes as much of the combined day-to-day variation as the correlation allows. It scales by how much each instrument typically moves in money terms.

Hedge lots = Lots A × |ρ| × (Range A × Pip value A) ÷ (Range B × Pip value B)
Risk left = √(1 − ρ²)

The second line is the important limit: even a correctly sized hedge leaves √(1 − ρ²) of the original risk. At a correlation (ρ) of 0.9 that is 43.6%; at 0.8 it is 60%; at 0.5 it is 86.6%. Only a correlation of ±1 — in practice, the same instrument — removes the risk completely.

How to use this calculator

  1. Instrument and Account currency — the position you want to protect. Pip values are converted to your account currency at reference rates.
  2. Your position — Long (buy) or Short (sell), and its size (lots).
  3. Hedge with — the instrument you will use as the hedge; its pip value per lot is shown underneath.
  4. Correlation — between −1 and 1. Use a recent figure, for example a 3-month correlation of daily returns from a correlation table.
  5. Typical daily range of each instrument, in pips or points — the daily ATR works well.

The result gives the hedge size and whether to buy or sell the hedge instrument, the risk reduction, the share of risk left, and the typical daily swing before and after the hedge. Show the math lists each step; Copy link with these numbers saves the inputs.

Worked example

Long 1 lot EUR/USD, hedged with GBP/USD, USD account. Correlation 0.85, daily ranges 70 and 85 pips, both $10 per pip per lot.

1 × 0.85 × (70 × $10) ÷ (85 × $10) = 0.70 lots

The correlation is positive, so the hedge is a sell of 0.70 lots of GBP/USD. Risk left = √(1 − 0.85²) = 52.7%, a reduction of 47.3%. The typical daily swing falls from $700 to about $369.

Negative correlation. Long 1 lot EUR/USD (range 60 pips) against USD/CHF with a correlation of −0.9 and a range of 55 pips. At USD/CHF 0.90 a USD/CHF pip is CHF 10 ÷ 0.90 = $11.11 per lot, so the hedge is 0.9 × 600 ÷ (55 × 11.11) = 0.88 lots, bought (same direction). 43.6% of the risk remains.

When to use it

  • Reducing exposure without closing — for example around a news event.
  • When same-instrument hedging is not allowed — US brokers do not permit opposite positions in the same pair, so a related instrument is the alternative.
  • Managing several related positions — gauge how much one position offsets another.

Common mistakes

  • Hedging lot for lot. Equal lots ignore differences in volatility and pip value, and over- or under-hedge.
  • Trusting a correlation to hold. Correlations change and can break down in exactly the conditions you are hedging against.
  • Expecting the hedge to remove all risk. At ρ = 0.85, over half of the risk remains.
  • Ignoring costs. You pay spread on both positions and swap on both if held overnight.
  • Hedging instead of exiting. If the original trade idea is no longer valid, closing it is cheaper than holding two positions.

Frequently asked questions

How is the hedge size calculated?

Hedge lots = lots of the original position × |correlation| × (its daily range × pip value) ÷ (the hedge instrument's daily range × pip value). This is the minimum-variance hedge: it minimises the day-to-day variation of the combined position.

Why doesn't a hedge remove all the risk?

Because the two instruments do not move in lockstep. With the best possible hedge size, the remaining risk is √(1 − ρ²) of the original: about 60% at a correlation of 0.8 and 43.6% at 0.9.

Should the hedge be a buy or a sell?

With positive correlation, trade the hedge in the opposite direction to your position; with negative correlation, in the same direction. The calculator shows which one applies.

Where do I get the correlation?

From a correlation table or your platform, ideally calculated on daily returns over the last few months. Check it again before relying on the hedge, because correlations drift.

Can I hedge with the same pair?

Some brokers allow opposite positions in the same pair, which is a correlation of 1 and leaves no price risk while open — but you pay spread and swap on both sides. US brokers do not allow it.

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