Most people use futures incorrectly, playing a game called roulette - hoping to guess what to bet on, red or green, trying to turn $10, $20...........$100 into a million, ultimately ending up with $0 in balance.
If you are a beginner, I recommend not using futures at the initial stage, start small, with spot trading, and gradually study and accumulate information.
Below I have described in simple language what, how, and why is needed in general terms
### Hedging cryptocurrencies using futures:
Hedging is a strategy that allows you to protect your investments from market risks. In the world of cryptocurrencies, this is especially important due to the high volatility of the market. In this article, we will look at how to hedge your crypto assets using futures.
#### What is hedging?
Hedging is a method used to reduce the risk of losses on investments by opening opposite positions in other markets. In the case of cryptocurrencies, this means opening positions in the futures market to protect your investments in the spot market.
#### Example of hedging
Suppose you bought 1 Bitcoin (BTC) on the spot market for $100,000 and want to protect your investment from a possible price drop. You can use a futures contract for this.
#### Steps to hedge:
1. Buying Bitcoin on the spot:
- Bought 1 BTC for $100,000 on the spot exchange.
2. Opening a short position in the futures market:
- Go to a futures exchange like Binance Futures.
- Open a short position on the BTC futures contract with the same volume as on the spot, i.e., 1 BTC.
#### Possible scenarios:
1. The price of Bitcoin drops to $95,000:
- Spot: The price of 1 BTC is now $95,000 (loss of $5,000 on the spot).
- Futures: The price of the futures contract has also fallen to $95,000.
- Since you have a short position, you profit from the price drop. Your profit from the futures trade will be $5,000.
- Summary: The loss on the spot position ($5,000) is offset by the profit on the futures position (+$5,000), making your overall position neutral.
2. The price of Bitcoin rises to $105,000:
- Spot: The price of 1 BTC is now $105,000 (profit of $5,000 on the spot).
- Futures: The price of the futures contract has also risen to $105,000.
- Since you have a short position, you lose on the price increase. Your loss from the futures trade will be $5,000.
- Summary: The profit on the spot position ($5,000) is offset by the loss on the futures position (-$5,000), which also makes your overall position neutral.
#### Conclusion
Hedging with futures is an effective way to protect your cryptocurrency investments from market risks. This method requires certain knowledge and experience, so beginners should start with small amounts and gradually increase their competence. Regular market monitoring and risk management will help minimize potential losses and ensure the stability of your investments.
Wishing everyone well! Don't gamble, invest wisely.
