How Finotive Manages & Hedges Risk
At Finotive, our primary responsibility is to manage real market exposure in a way that ensures the long-term sustainability of our business while providing a fair, consistent trading environment for our traders. Unlike many firms, which either do not hedge at all or simply “mirror” profitable traders directly into the live market, we take a different approach. Fully copying an individual trader’s positions would create excessive exposure to single accounts and introduce unnecessary risk to our capital base.
Why We Don’t Fully Mirror Individual Traders
When a trader participates in a Finotive account, they are trading in a simulated environment during the challenge stages. If they fail, their only loss is the upfront fee they paid — they do not lose their own market capital. However, if we were to place every single trade from every trader directly into the real market, the risk would be borne entirely by Finotive. Even from profitable traders a few poorly timed or overly aggressive traders could generate significant, real-money losses, which would be unsustainable.
This is why we take a measured, portfolio-based approach to hedging.
The Finotive Hedging Model
We employ a risk-scored, order-book–based approach to determine how much of our traders’ activity we choose to offset in the live market. The process works as follows:
1. Trader Risk Scoring
Every trader in the funded stages is assessed on multiple criteria. We use their
challenge phase performance as an initial benchmark and continue to update this
data throughout their funded status and across their entire lifetime with Finotive.
This ongoing assessment does not affect their ability to purchase new accounts or
progress within the programme — it is used purely at a company level to understand
the overall risk profile and exposure per instrument.
Traders who demonstrate controlled, consistent, and sustainable behaviour receive
higher trust ratings, which increases the likelihood that their trades may be mirrored
or partially mirrored if inline with the direction of our overall exposure.
2. Order Book Risk Assessment
We analyse our entire trader order book in real time, grouping positions by instrument
and direction. If a large percentage of traders are positioned the same way on a volatile asset (e.g., XAUUSD or cryptocurrencies), we evaluate the potential exposure this creates for the
firm using both the aggregated order book and our in-house risk scoring model.
This ensures our hedging decisions are informed by both the scale of open positions
and the quality of the traders holding them.
3. Selective Hedging
Based on the combined trader risk scores and the overall order book exposure, we
decide what proportion of that net exposure to offset in the live market.
This may range from 0% (no hedge) to 100% (full hedge), depending on our risk
views, volatility conditions, and liquidity.
In many cases, we hedge only a percentage of the total exposure, allowing us to
balance protection of our capital with retention of potential gains from profitable
trader flow.
4. Dynamic Adjustments
Hedging levels are not fixed — they change throughout the trading day as new data
comes in.
If market conditions shift sharply or a high-risk cluster of positions develops, we can
increase hedging coverage in real time. Conversely, if exposure is diversified and risk
is low, we can reduce hedging to avoid unnecessary costs.
5. Capital Protection First
Our hedging decisions are always made with the mindset that our losses are real
capital losses. Unlike traders, who risk only their upfront fee, our exposure involves
actual funds in the market.
○ By managing exposure at a portfolio level rather than an individual level, we ensure
that no single trader or group of traders can materially damage the firm’s capital
base.
Key Benefits of Our Approach
● Stability: Protects the firm’s capital against concentrated, high-risk positions.
● Fairness: Allows consistent traders to have more of their positions mirrored while filtering out
unsustainable behaviour.
● Scalability: We can support thousands of traders without overextending market exposure.
● Adaptability: Dynamic hedging allows us to react quickly to changing market conditions.
