Hedging - The Secret Weapon in Bear Markets

Hedging is a strategy that uses derivative futures to hedge against price fluctuations of digital assets. Through hedging, you can mitigate the impact of price volatility on your investment portfolio, thereby protecting your investments or business profits from market fluctuations.

Hedging is an advantageous strategy during bear markets. This approach is closely related to coin-margined futures, where simply opening a 1x short position in a coin-margined futures can achieve hedging effects. Let's take a look at Bitrue's trading interface:

To understand hedging, it's essential to first understand coin-margined futures. The main difference between coin-margined and USDT-margined futures lies in the margin requirements:

• USDT-margined futures use USDT as collateral and settle in USDT.
• Coin-margined futures use the token itself as collateral and settle in the token.

In coin-margined futures, profits from long positions decrease as the market rises, while losses from short positions accelerate. Conversely, profits from short positions decrease as the market rises, while losses from long positions accelerate, as illustrated below: 

The reason we often adopt a 1x short position in coin-margined futures for hedging is because of the following two advantages:

• Never liquidated
• Maintains value almost regardless of market movement

For example: Assume the current market price of Bitcoin is $20,000. By shorting $20,000 worth of Bitcoin through futures, the following outcomes occur with price changes:

• If the price drops to $10,000, the net assets in the futures account would be 2 Bitcoins, maintaining a total value of $20,000 without any loss.
• If the price rises to $40,000, the net assets in the futures account would be 0.5 Bitcoin, again maintaining a total value of $20,000.

Thus, through futures trading, whether the underlying asset's price moves up or down, you can profit by taking long or short positions, reducing losses in spot trading, and simultaneously hedging risks.

If you're interested in futures trading and want to earn additional returns on Bitrue, join us now! 

Click here to engage in coin-margined futures trading now!

Cryptocurrencies involve high risks. If you hold such assets or plan to do so soon, please be aware of the risks and manage your assets carefully.