A stop-loss closes the position and makes the loss final. A hedge opens an opposing position and freezes the loss: whatever one side loses, the other gains. The loss up to the moment of the hedge remains, plus costs for two positions. A stop makes the decision, a hedge postpones it.
| Criterion | Stop-Loss | Hedge |
|---|---|---|
| What happens | Position closed | Second position opened in the opposite direction |
| Loss afterwards | Fixed, realised | Frozen, unrealised, in full |
| Costs | Spread and commission once | Twice, plus financing on both sides |
| Decision | Made | Postponed, one side has to be closed later |
| Prop firm rules | Allowed, often required | Restricted or banned at many firms |
| Sensible use | Risk cap per trade | Protecting a holding through an event, for example with futures or options |
For every single trade with a clear invalidation level. A stop answers the question: from where on was the idea wrong?
When an existing holding needs protection through a known event, for example a stock portfolio through a rate decision, and the holding is meant to be kept afterwards. Not to avoid looking at a running loss.
Is a hedge not better because I do not realise the loss?
Mathematically no: the loss is the same, only frozen, and from now on it costs double fees. The difference is psychological. A hedge feels like an open trade but is a closed one with running costs.
Educational content, not investment or tax advice. Neutrally contrasted, not a recommendation of either approach. Trading leveraged products carries risk of total loss.