# Hedging vs Netting for CFD trading

Whenever a new order is opened for an instrument with an open position, it is important to understand the impact on your overall exposure based on how the broker executing the trades manages the orders. There are two methods - netting and hedging - however, please note that the Level2 application operates on a Netting basis only as each strategy can only have one action block with either a sell or a buy order, this means trades will always be in the same direction.

The Netting approach is most suitable for automated trading and a high volume of trades as it allows traders to manage their risk exposure by consolidating their positions into a single position. This simplifies trading activities and reduces the operational costs associated with maintaining multiple positions.

For your awareness, here is a short explanation of both methods.

## Netting <a href="#h_cc5686bb4a" id="h_cc5686bb4a"></a>

The Netting method allows only one position to be open in any direction for one specific instrument at a time.

* For example, if you already had an open order to buy 1 lot of EUR/USD, if you were to open another buy order of 2 lots, then you would have one position with a total volume of 3 lots. In this case, the entry price would be averaged (1 lot of buy + 2 lots of buy = 3 lots of buy).
* If you open a sell position with 1 lot, you will close the position (1 lot of buy - 1 lot of sell = 0).
* If you open a sell position with 3 lots, your buy position will be closed, and a sell deal will open for the remaining volume of 2 lots (+1 lot of buy - 3 lots of sell = -2 lots of sell)

## Hedging <a href="#h_1c11e1f8fa" id="h_1c11e1f8fa"></a>

The Hedging method allows as many open positions in different directions for the same instrument as the trader chooses.

* For example, if you had opened a position to buy 1 lot of EUR/USD and then sometime later, decided to open a selling position on the same instrument, also sized 1 lot. With the Hedging system, both of the positions will be opened - 1 lot EUR/USD buy and 1 lot sell.
* If another new position in the same direction as the first one was opened, there will be a third order at a new price and volume. In theory, there can be as many such positions as you choose. They can be closed at any time in any order.


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