Hedging is a financial strategy that helps you safeguard against potential losses when market prices fluctuate. Think of it like insurance for your investments or business - it protects you from unexpected ups and downs in the value of assets like stocks, currencies, commodities, and more.
Picture this: you're a farmer growing wheat, and you're concerned that the price might drop by the time you harvest. To shield yourself from that uncertainty, you make a deal with a buyer (sign a futures contract) to sell your wheat at a fixed price a few months later. That way, even if the market price of grain takes a dive, you'll still get the agreed-upon amount and your income won’t be affected.
Hedging is also widely used in the cryptocurrency space to mitigate volatility and unpredictable price fluctuations. In our context, we employ hedging strategies when working with exchangers. Here is an example of using hedging in a 2-step arbitrage scenario (Exchanger → Spot):
First, we identify an arbitrage and verify the price difference between the exchanger and the exchange. If the spread looks good, we move on to the next step.
Next, we place an order on the exchanger's platform and simultaneously sell the asset short on the exchange.
Then, we transfer funds to the exchanger's wallet and wait for it to process the transaction and send us the funds.
Once we receive the funds from the exchanger, we use them to buy the original asset, closing out our short position on the exchange.
When we short an asset, we profit if its price drops. Meanwhile, our arbitrage funds remain safe from losses attributed to asset depreciation. The futures contract offsets any losses on the linked assets, ensuring we don't take a hit even if the arbitrage asset's price falls. That's the power of hedging! Conversely, if the short position turns negative, the asset's price increase compensates for the losses, locking in the arbitrage spread.
To facilitate hedging during arbitrage, we've added several features to the scanner:
An option to filter your search for arbitrages that offer hedging opportunities on the futures market.
Links to futures contracts. When you click on a trade to view its details, you'll see if any of the pairs in that trade can be hedged. If so, you'll get a direct link to the relevant futures contract.
A real-time price chart shows the ups and downs of the market over the last 15 minutes. Use this data to inform your strategy when executing your trades, and decide whether hedging is the right move.
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