Essential trading skills for cryptocurrencies: Master risk aversion skills in one article

Using contracts for risk hedging is an important strategy in cryptocurrency trading. This article will explore in-depth how to use contracts for risk aversion operations and the key points that need to be paid attention to. Safe-haven trading is mainly divided into long hedging and short hedging, which are suitable for investors who expect to buy or sell crypto assets in the future.

The theoretical basis of safe-haven is that the price trends in the spot market and the futures market usually converge, because both are affected by the same supply and demand relationship. By taking opposite actions in both markets, profit and loss hedging can be achieved and price volatility risks can be reduced.

The key to risk aversion lies in grasping the timing: At the same time, perform equal reverse operations on the same crypto assets in the spot and futures markets, such as buying spot and selling equal amounts of futures contracts at the same time, or vice versa. When price fluctuations lead to profit and loss in spot trading, profit and loss in futures trading can offset or compensate for the loss in spot trading, thereby reducing risks.

Cryptocurrency risk aversion tips:

1. Long-help safe-haven (buy safe-haven): Applicable to investors who expect future currency price to rise and need to pay corresponding crypto assets at a certain point in the future. For example, miner Zhang San will need to pay 10 bitcoins electricity bills next month, with the current price being $60,000 per unit. In order to avoid the risk of price increase, he can use margin to trade bullish contracts to hedge risks.

2. Short-selling safe-haven (selling safe-haven): Suitable for investors who hold crypto assets and are worried about future price declines. For example, Li Si, a coin hoarder, holds 10 bitcoins, fearing that the price will fall. He can hedge risks by opening bearish contracts and lock in potential returns.

Basic risk: Although risk aversion can effectively reduce the risk of price volatility, it cannot completely eliminate the risk. Changes in basis (the difference between futures prices and spot prices) will affect the risk aversion effect. Both positive basis (spot price is higher than futures price) and negative basis (spot price is lower than futures price) bring uncertainty. Investors need to pay close attention to the basis changes and choose the right time to trade.

Frequently Asked Questions and Answers for Risk Avoidance:

• Contract Order Quantity: Calculated based on the contract face value (OKX BTC contract face value is US$100, and other currencies are US$10). For example, the current price is $60,000 and hedging 10 bitcoins will be required, and the order quantity is 6,000 (60,000/100*10).

• Margin Preparation: The more margin, the better, but the capital utilization rate needs to be considered. Flexible adjustment of margin ratio based on market volatility and the time when margin is added.

• Dealing with liquidated stocks: It is crucial to avoid liquidated stocks. Once you face the risk of liquidated stocks, you should add margin in time.

• Close the position: Check the closing time according to your own expectations and contract type. For example, if the expected lock-in for one month, the position will be closed after one month.

• Basic risk management: The impact of basis changes can be reduced through statistical arbitrage and other methods.

In short, contract hedging is an effective risk management tool, but investors need to fully understand its principles and risks and operate with caution. Only by paying close attention to market changes and basis fluctuations can we minimize risks and obtain ideal investment returns.

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