What is hedging?
When you open a CFD position, some CFD providers may then hedge that position in the underlying market.
For example, let's say you bought 1,000 SIA share CFDs. As the CFD provider sold the CFDs to you, it would have a corresponding short CFD position. If the price of SIA shares went up, you would make a profit while your provider would make a loss. To reduce this risk, some CFD providers may hedge client positions in the underlying market. In this case, if the provider did hedge, it would buy 1,000 SIA shares.
Now the CFD provider would hold two positions – a short position on 1,000 share CFDs, and a long position on 1,000 shares. If the share price rose, the provider would make a loss on the short position, but this would be offset by a profit on the long position. Likewise, if the share price fell, the provider would make a loss on the long position which would be offset by a profit on the short position.
Your CFD position remains unchanged – when the price of SIA shares goes up, you make a profit, and when it falls you make a loss.