In today's digital age, Bitcoin hedging has become a much-discussed strategy in the digital currency market. Bitcoin hedging refers to a method of hedging risk through trading and is designed to protect investors from market fluctuations. This strategy can not only help investors avoid risks, but also make profits from market changes. This article will delve into the meaning, principles and practical applications of Bitcoin hedging, and help you uncover the mystery of the digital currency market.

I believe many stock investors have heard of hedging, but when it comes to Bitcoin hedging, they may be a little unfamiliar. In fact, hedging was originally a financial term and is often used in the stock industry. Therefore, investors with stock trading experience have heard of hedging. Yes, in fact, hedging is an investment that reduces the investment risk. It has the same meaning for Bitcoin hedging. It may be said that most investors cannot understand it. Below, the editor of the currency circle will give you a simple explanation of Bitcoin. What exactly does currency hedging mean?

## What does Bitcoin hedging mean?

To put it simply, Bitcoin can not only be long but also short, which means there are opportunities to make profits when the price of Bitcoin falls. When shorting in the Bitcoin market, people usually choose contracts. For example, when the market price is 5,000 points, short the Bitcoin contract. If the market falls to 4,000 points, the short position will obtain a 1,000-point drop in profit.

Bitcoin hedging is to buy Bitcoin and short Bitcoin at the same time to achieve breakeven. If Bitcoin rises, Bitcoin will make money. If Bitcoin falls, Bitcoin contracts can make money. The so-called hedging refers to conducting two transactions at the same time that are related to the market, in opposite directions, of equal quantity, and with profit and loss offsetting. Market correlation means that only two market trends are identical. Opposite direction means that the buying and selling directions of two transactions are opposite, so that no matter which direction the price changes, one will always make a profit and the other will lose. The quantity of the two transactions needs to be determined based on the magnitude of the respective price changes, and the quantities should generally be equal.

## Bitcoin hedging method:

There are many methods of futures arbitrage. This time we will talk about two hedging arbitrage methods:

1. Futures Hedging and Arbitrage

Futures and spot hedging arbitrage refers to taking advantage of the price difference between futures and spot prices for arbitrage

Since Bitcoin futures and Bitcoin spot are completely consistent on the delivery date, when there is an unreasonable price difference between Bitcoin futures and Bitcoin spot, you can obtain risk-free spread income by shorting the futures and going long on the spot at the same time.

Case: Assume that the Bitcoin futures price of D network (DEW exchange) is 15,200 US dollars per coin, and the Bitcoin spot price of B network (bittrex) is 15,000 US dollars per coin.

At this time, you can buy 1 Bitcoin on Network B for $15,000, and at the same time short Bitcoin futures worth $15,000 on Network D.

Follow 1
DEW = 0.5 US dollars, you need to short futures worth 15,000 US dollars, that is, the contract capital is 30,000 DEW. The short selling price is 15200, and the contract capital for 1 lot is 15200*5=76000
DEW

Then the number of short lots is: 30000/76000=0.4 lots

Summary: Number of short lots = (Spot USD price/DEW USD price)/(Futures price*5)

After two orders are placed successfully, the following situations may occur:

1. If the price difference between futures and spot prices becomes larger, the floating profit and loss will be negative, and you can wait for the futures to expire and be delivered. The futures delivery price is calculated based on the spot price, so the delivery price is basically the same as the spot price, and the profit is about 15,200-15,000=200 US dollars.

2. If the spot price is higher than the futures price, the total profit will exceed US$200.

3. From the above case, we can see that as long as there is a price difference, you can make money after placing an order.

2. Cross-market hedging and arbitrage

Speculators take advantage of the difference in futures prices of the same commodity on different exchanges to buy and sell futures on two exchanges at the same time.
The activity of contracting goods to seek profit. When the difference in prices for the same commodity on two exchanges exceeds the cost of transporting the commodity from the delivery warehouse of one exchange to the delivery warehouse of another exchange, it can be expected that their prices will shrink and trade at some point in the future. Reflects the true cross-market delivery costs in one period. For example, if the sales price of wheat on the Chicago Exchange is much higher than that on the Kansas City Exchange and exceeds the transportation fees and delivery costs, then a spot merchant will buy the wheat on the Kansas City Exchange and ship it to the Chicago Exchange. Delivery.

The above is the relevant content about what Bitcoin hedging means. As we all know, Bitcoin hedging also involves certain risks. For example, the risk understood in Bitcoin hedging is that the market may not react for a few seconds. In addition, if you execute a sell The transaction may be put on hold if there is a delay before the transaction. The process of moving digital currency from one exchange to another can quickly see the rapid price changes in the exchange, so under the prevailing market conditions, Arbitrage is accomplished in a very short period of time.