⚠️ Please Note:
If a trade is unintentionally hedged — even if it hasn’t been flagged yet — it should be closed within 10 seconds. Flags are applied at the end of the day, and closing such trades quickly helps avoid flags.
At PropShopTrader, we maintain a strict no-hedging policy in accordance with CFTC (Commodity Futures Trading Commission), NFA (National Futures Association), SEC (Securities and Exchange Commission), and CME Group regulations. As a proprietary trading firm, we do not qualify for bona fide hedging exemptions, and traders are prohibited from engaging in any form of hedging activity across their accounts.
Even though traders operate in a simulated trading environment, we require all participants to adhere to the same rules and regulations that apply to live market trading. This ensures fair market practices and compliance with industry standards while preparing traders for real-world trading conditions.
Definition of Hedging & Prohibited Activities #
Hedging involves holding both long and short positions in the same instruments within a single account or across multiple accounts to artificially reduce market exposure. While hedging is an accepted practice in commercial risk management, it is not permitted in proprietary trading as per CFTC, CME, and NFA regulations.
🚫 Prohibited Hedging Practices Include: #
- Simultaneously opening long and short positions in the same instrument
- Example: Buying and selling ES (E-mini S&P 500) at the same time.
- Using multiple accounts to offset risk
- Example: Taking opposite trades in separate accounts under common ownership.
- Hedging across micro and mini contracts
- Example: Going long MES (Micro E-mini S&P 500) while shorting ES (E-mini S&P 500).
- Coordinated trading with other individuals to hedge risk
- Engaging in coordinated trading with others to hedge risk, manipulate market exposure, or unfairly distribute benchmarks is strictly prohibited.
- Example: Traders place identical but opposite trades in separate accounts to eliminate market risk, ensuring one account always profits while the other takes the loss. This violates our trading policies and creates an unfair advantage.
- Common Scenarios of Coordinated Hedging:
- Family/Household Hedging (e.g., Spouse, Siblings, Parent-Child)
- Example: A husband and wife each maintain separate accounts. One only takes long positions, while the other only takes short positions on the same instrument. This guarantees that one account always wins, allowing them to transfer profits unfairly.
- Community/Group Trading for Risk Sharing
- Example: Members of a trading community or Discord group coordinate their trades so that some accounts go long while others go short on the same asset. This ensures a guaranteed benchmark accumulation, bypassing proper risk management.
- Affiliated Traders (Friends, Business Partners, Trading Groups)
- Example: Two friends open accounts and mirror each other’s trades in opposite directions. Regardless of market movement, one trader always profits while the other absorbs the loss, allowing them to cycle benchmarks unfairly.
- Multiple Accounts for Benchmark Exploitation
- Example: A trader opens multiple accounts under different names (family, friends, or aliases). They place opposing trades across these accounts, ensuring a benchmark is always secured, even if the other accounts fail.
- Family/Household Hedging (e.g., Spouse, Siblings, Parent-Child)
- Engaging in coordinated trading with others to hedge risk, manipulate market exposure, or unfairly distribute benchmarks is strictly prohibited.
Regulatory Compliance & Industry Standards #
To align with CFTC, NFA, and CME regulations, PropShopTrader enforces strict no-hedging policies to prevent market manipulation and ensure transparency. Key regulatory guidelines include:
- CFTC Rule 1.38 – Competitive Execution & Wash Trade Ban
- Prohibits transactions designed to avoid market risk or manipulate market prices.
- CME Rule 534 – Wash Trades Prohibited
- Prevents self-matching and risk-neutral trading between accounts under common control.
- NFA Rule 2-9 – Supervision of Trading & Risk
- Requires firms to actively monitor and prevent wash trading or unauthorized risk exposure.
For full compliance details, refer to:
📜 CFTC Rule 1.38 – Wash Trade Ban
📜 CME Rule 534 – Wash Trades Prohibited
📜 NFA Rule 2-9 – Trading Supervision
📜 Market Regulation Advisory Notice on Wash Trades
📜 Definition of a Wash Trade by CME
Consequences of Violating the No-Hedging Rule #
At PropShopTrader, we strictly enforce our no-hedging policy in accordance with CFTC, NFA, and CME regulations. Violations of this policy will result in immediate enforcement actions, as outlined below:
🚨 First Violation – Affected Accounts Closed & Failed* (pending appeal) #
- The trader will not be considered for a benchmark if accounts are flagged for hedging.
- If hedging is detected, the accounts involved in hedging will be closed and failed. Other active accounts will remain unaffected.
- The trader will receive a formal warning regarding the violation.
- No further benchmarks for affected accounts will be processed and all remaining accumulated profits on affected accounts will be forfeited.
- The trader can continue trading on their remaining accounts or purchase new ones.
* Closure becomes permanent only if your appeal is denied. See the Appeal Process below.
🚨 Repeated Violations – Permanent Account Termination #
If a trader continues to engage in hedging after receiving a warning, the following actions will be taken:
- Permanent account closure with no possibility of reinstatement.
- Forfeiture of pending benchmarks (if any) and all trading profits accumulated to date.
- A permanent ban from PropShopTrader, preventing future participation in any of our programs.
🚨If Coordinated Trading is Detected: #
- All involved accounts will be permanently closed.
- Any accumulated benchmarks will be forfeited.
- A permanent ban will be placed on all traders involved.
📨 Appeal Process – Required Within 24 Hours #
- A Flag Appeal Email is sent after market close on the day you are flagged for hedging. You are required to appeal on only Gladiator Accounts.
- Reply within 24 hours—no later than 1:00 AM EST Saturday—and include your explanation, trading plan, and supporting evidence (screenshots, chart mark-ups, etc.).
- Compliance will review your reply and email you a decision.
- If approved: The hedging flag is removed and normal benchmark eligibility resumes (if otherwise eligible).
- If denied: The enforcement actions listed above remain in place.
How to Ensure Compliance #
✅ If a flag occurs due to a mistake or oversight — immediately close the trade and ensure it does not remain open for more than 10 seconds.
✅ Trade only one direction on each market – Do not hold both long and short positions in the same instruments at any given time across any accounts.
✅ Monitor your trades carefully – Ensure your activity across all active accounts aligns with regulatory standards.
✅ Monitor your algorithms and manual trades – Ensure that any algorithms deployed across multiple accounts maintain directional alignment for each instrument and do not interfere with your discretionary trades.
For further details on our prohibited practices, please refer to this page.
By enforcing these regulations, PropShopTrader ensures a compliant, fair, and transparent trading environment while protecting traders from regulatory violations.