What’s Hedge Mode?
In the hedge mode, a futures contract allows traders to hold both long positions and short positions at the same time to hedge risks of positions in different directions.
Take FUTX’s BTC perpetual futures contract for example. In the hedge mode, you can buy (long) BTC with the position size of 10 conts and sell (short) BTC with the size of 15 conts at the same time. Then, you are now holding BTC long positions of 10 conts and BTC short positions of 15 conts in your futures account.
Hedge Mode VS One-way Mode
The opposite of the hedge mode is the one-way mode. In the one-way mode, a futures contract allows only one position in one direction, which means traders cannot go long and go short on the same contract simultaneously. For the same contract, orders in the same direction will be combined into one position when filled while orders in the opposite directions will be hedged.
Take FUTX’s BTC perpetual futures contract for example. In the one-way mode, you buy BTC to open a long position of 10 conts and sell BTC to open a short position of 15 conts at the same time. Then, your BTC positions in your futures account will be in the following two situations:
1. If you do not use the reduce-only mode, the system will first close your BTC long position of 10 conts, and then open short orders of 5 conts. Now you are holding the BTC short position of 5 conts.
2. If you use the reduce-only mode, the system will close your long positions of 10 conts, and no more short orders will be placed. Then, there will be no BTC positions in your futures account.
Compared with the one-way mode, the hedge mode has the following advantages: 1. Hedge risks. For example, when a loss hits a trader’s long positions, the trader can place a short order of the same size as the long positions making profits to offset the loss and prevent liquidation. 2. Make multiple profits. For example, when traders hold both long and short positions for the same contract, they can close the positions that’re losing money to protect their profits according to the market trend. Close your short positions if you expect the market is to rise and close your long positions when the market is to fall.
Note: The Hedge mode supports both cross-asset margin and isolated margin modes. Please pay attention to the margin mode of your current futures positions before switching to the Hedge mode. Switching between cross-asset and isolated margin modes is not available for open positions or pending orders.
