Definition and Core Principles
Hedging is one of the primary financial functions of derivative products, referring to the use of contracts to offset price fluctuations in underlying digital assets. This strategy helps mitigate risks caused by volatile asset prices during a specific period. Hedging can be categorized as:
- Long Hedge: For investors anticipating future asset purchases
- Short Hedge: For investors planning future asset sales
Theoretical Foundation:
Spot and futures markets typically move in tandem under normal market conditions due to shared supply-demand dynamics. While price movements are correlated, opposite market positions create offsetting gains/losses - futures profits can compensate for spot market losses, or vice versa.
Key Characteristics of Hedging
The fundamental mechanism involves:
- Simultaneous opposite transactions in spot and futures markets for identical assets
- Equal quantity positions (buy spot/sell futures or vice versa)
- Price movement compensation over time
- Establishing a "present-future"对冲机制 to minimize price risk
The 4 Golden Rules of Hedging
- Opposite Transaction Direction: Positions must offset each other
- Identical Asset Class: Same underlying asset in both markets
- Equal Quantity Matching: Equivalent position sizes
- Month Alignment: Same or proximate contract months
Hedging represents risk management through strategic futures market participation combined with现货交易.
Two Primary Hedging Strategies
1. Long Hedge (Buy Hedge)
Scenario: When expecting price increases but needing to purchase assets later.
Example:
- Bitcoin miner needs 10 BTC for electricity payments next month
- Current price: $60,000/BTC
- Action: Uses 1 BTC as 10x leverage margin to buy call contracts
Outcome at $70,000/BTC:
- Futures profit: ~1.43 BTC ($100,000)
- Spot "loss": ($60k-$70k)*10 = -$100,000
- Perfect对冲 achieved
2. Short Hedge (Sell Hedge)
Scenario: Protecting against potential price declines in held assets.
Example:
- BTC holder owns 10 BTC at $60,000
- Action: Opens put contracts for 6,000 units (10 BTC equivalent)
Outcomes:
At $70,000:
- Futures loss: -1.43 BTC
- Net sale: 8.57 BTC → $600,000 locked value
At $50,000:
- Futures gain: +2 BTC
- Net sale: 12 BTC → $600,000 locked value
Understanding Basis Risk
The critical factor in hedging effectiveness is basis - the spread between现货和合约价格:
Basis = Spot Price - Futures Price
Key Insights:
- Positive basis (contango): Spot > Futures
- Negative basis (backwardation): Spot < Futures
- Basis converges to zero at contract expiration
- Long hedgers benefit from weakening basis
- Short hedgers benefit from strengthening basis
Management Tip: Monitor basis fluctuations and execute trades at optimal times to enhance hedging outcomes. Consider statistical arbitrage when basis is abnormally wide.
Hedging FAQs
1. How to calculate contract units?
Formula:
(Current Price / Contract Face Value) × Asset Units
Example:
$60,000/BTC ÷ $100 × 10 BTC = 6,000 contracts
2. Ideal保证金 ratio?
Balance between capital efficiency and risk:
- Minimum 300% for high liquidity assets
- 400%+ for volatile conditions or slow margin replenishment
3. Avoiding爆仓?
Never let hedge positions liquidate. Immediately add margin when approaching maintenance levels.
4. When to close positions?
Align with:
- Original time horizon (e.g., 1-month protection)
- Contract expiry dates (for delivery contracts)
- Never extend due to market speculation
5. Minimizing basis risk?
Implement statistical arbitrage strategies when basis is unusually wide.
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