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While hedging seems to be more useful in physical commodity markets, it does work in cryptocurrencies as well. Bitcoin miners have operating costs just like farmers, and they rely on getting a fair price for their product. The hedging process involves the use of both futures and spot markets. Let's see how it works. Using Bitcoin futures, you can further diversify your portfolio and adopt new trading strategies, and you can even create a balanced portfolio between different coins and products. There are still some investors who don’t quite understand what this contract hedging means? Let the editor of the currency circle explain contract hedging in a simple way.

## What does contract hedging mean?

Bitcoin contract hedging can be regarded as a hedging of contract risks. In order to prevent losses from investing in one direction, we invest in both directions to ensure that the worst possible outcome is capital preservation.

Here are the steps for hedging arbitrage with Bitcoin contracts:

Step 1: If we use leverage to open a position in a contract transaction, we will form long and short positions of the same quantity, forming a hedging state. (If you feel that the market is heading upward, you can open more long positions.)

Step 2: Then look for opportunities and room for fluctuations. If the fluctuation reaches a certain point, you can open a position. If the price rises by about a corresponding point, you can open short positions one after another. If so, you can open long positions one after another and close short positions one after another.

Step 3: Because there is not much difference in the number of long and short positions, under normal circumstances, the position will not be liquidated, even if the market plummets or rises. There will always be free positions in hand, so open long positions when prices fall sharply and short positions when prices rise sharply.

Step 4: If you don’t want to watch the market, just set up to close long and short positions or open long and short positions. If it goes up, you can open short positions and close some long positions. If it goes down, you can open long positions and close some short positions. Strictly control the positions. .

## Contract Development

Bitcoin futures options have become extremely popular, allowing you to trade on either side of the market. Bitcoin futures options work on the movement of Bitcoin, providing a direction for Bitcoin to move in either direction, as it is the underlying asset on which the options are based. Allowing for leverage on larger positions, options allow you to go long (if you think the market will go north) or short a position in future options if you think the market will go south. Additionally, the available leverage options for Bitcoin futures (trading up to 100x) make the situation even more ideal for traders to trade.

Comparing trading in Bitcoin and Bitcoin futures, the available opportunities to trade future options present exciting opportunities for traders. As mentioned earlier, being able to trade with up to 100x leverage means, if the trade goes well, making 100x profits on the delivery option of normal Bitcoin fluctuations. Secondly, Liquidity – As the demand for Bitcoin trading continues to grow, there is now a lot of trading volume and liquidity in the futures options market as many traders prefer to trade futures options. Third, the option to make money by short selling when Bitcoin drops is a blessing that allows traders to profit from any movement that occurs in the crypto world.

The above content is the currency circle editor’s popular explanation of what contract hedging means. In fact, due to high leverage trading, this may trigger very large buy and sell orders in the physical market, which may have a knock-on effect on the physical price. Leveraged trading allows investors to open positions that are higher than their account balance. Leverage is a very powerful tool because it can magnify your gains, but it can also be dangerous because it can also magnify your losses or even drain your account if you accidentally. As we all know, the futures trading market has grown into a multi-trillion dollar industry, and futures trading is where banks and other large financial institutions can legally participate.