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Speaking of futures hedging, it is actually a risk management principle used to offset investment losses by holding opposite positions in related assets. You can think of hedging as a form of investment insurance. Although the cryptocurrency market is relatively immature right now, there are a handful of financial products available that you can start using to secure your transactions. Bitcoin futures contracts are the first traditional derivatives products. They officially entered the market through the old exchange Cboe as early as 2017. With the emergence of futures trading, a new era has begun. Investors want to know what is the purpose of this futures hedging? Let the editor of the currency circle analyze the purpose of futures hedging in an article.

## What is the purpose of futures hedging?

1. Hedging transactions between futures and spot. That is to say, at the same time, the futures trading market and the spot trading market carry out transactions in opposite directions and with the same amount. This is also the most basic hedging transaction of futures.

2. Hedging transactions of the same futures trading product in different futures trading markets. Due to differences in regions and systems, the prices of the same futures contract goods at the same time in different types of markets are likely to be inconsistent and constantly changing.

3. Hedging transactions of the same commodity at different delivery times of futures. Because prices change over time, the price difference for the same product is formed at different delivery times, and this price difference will also continue to change.

## Types of futures hedging

1. Hedging: The purpose of making futures contracts is to avoid the risk of spot price fluctuations by buying and selling an equal number of futures contracts in opposite directions in the futures market. Futures contracts are created to serve spot entities.

2. Arbitrage: Arbitrage can be cross-variety arbitrage or inter-temporal arbitrage. It is mainly a trading strategy made to earn the price difference.

3. Lock-up: The purpose of lock-up is to reduce losses. It is equivalent to opening a futures contract of the same type with the opposite direction and equal quantity.

Arbitrage has a particularly big advantage, which is to enjoy a large one-sided position. This means enjoying the unilateral margin discount. For arbitrageurs, the use of margin is greatly improved. In addition, it is not impossible to spread money into different areas, but you must consider whether you have the ability and energy to take everything into consideration. If you don’t have too much money, there is no need to invest in a large area.

The above content is the detailed explanation of the currency circle editor on the purpose of futures hedging. The most significant advantage of Bitcoin futures trading is that you do not need to own the underlying asset (Bitcoin) to gain exposure to Bitcoin. Another important advantage of Bitcoin futures is that you can use them to hedge your long positions in case the market starts to decline. Compared with the futures market, the Bitcoin options market has only recently emerged. The main purpose of options contracts is to provide traders and investors with the right, but not the obligation, to buy or sell an agreed amount of Bitcoin on an agreed date. Due to Bitcoin's extreme volatility, options are highly priced and affordable primarily to experienced market participants.