In one sentence, understand what hedging is: "Buy insurance with reverse operations; don't panic in a crash, don't be greedy in a surge."

Hedging means betting on both 'up' and 'down' at the same time, allowing the two transactions to offset each other's risks.

Core Purpose: Not afraid of market fluctuations, only seeking asset preservation (not for getting rich).

Suitable Scenarios: When cryptocurrency prices are highly volatile or when holding for the long term but fearing short-term crashes.

Case Demonstration:

Assuming you hold 1 BTC (current price $100,000) in spot, worried about price fluctuations, shorting a $100,000 BTC contract in the futures market for hedging:

If BTC drops to $95,000, you incur a $5,000 loss on the spot market → earn $5,000 on the futures short position → net loss of $0. If BTC rises to $105,000; earn $5,000 on the spot market → lose $5,000 on the futures short position → net gain of $0.

Result: Regardless of whether the price rises or falls, your assets are always locked at $100,000.


This is the best example, looking at the value of perpetual contract positions and the value of spot holdings, the values of spot and contracts balance each other.

Common Types of Hedging in Cryptocurrency

Spot and Futures Hedging:

Simultaneously hold spot (physical coins) and reverse futures contracts (like shorting) to utilize the leverage effect of the futures market to offset spot price fluctuations.

Xiao Ming wants to participate in a new project today, buying 3 BNB (current price $600, total value $1,800) to stake for the new project, and simultaneously opening a 1x $1,800 BNB futures short position for hedging. So regardless of whether BNB rises or falls, the gains and losses from the spot and the futures position offset each other (if BNB drops to $590, the spot loses $30, the short earns $30; if it rises to $610, then vice versa), locking in a new project profit of $50-$150.

Cross-Exchange Hedging:

Utilize price differences between different exchanges for hedging arbitrage.

The BTC price on KuCoin is $100,000, while on OKEx it is $100,200. You can buy 1 BTC on KuCoin and simultaneously sell 1 BTC on OKEx, earning a price difference of $200 (excluding fees).

Stablecoin Hedging:

When the market is uncertain, exchange cryptocurrencies for stablecoins (like USDT, USDC) to avoid the risk of price fluctuations.

Hedging is a strategy of "exchanging cost for security"; earning less is better than suffering a significant loss, suitable for conservative investors. Beginners are advised to use stablecoins or low-leverage futures for simple hedging to avoid complex operations.