In Australia, Beaufort Fiduciaries Pty Ltd (ACN 162 139 871, AFSL No. 545124) provides wholesale clients with access to derivatives where the underlying assets are digital assets. Derivatives are complex, regulated financial products that are difficult to understand and may not be suitable for inexperienced investors. For eligibility, terms and conditions click here. Krak Pay is offered by Bit Trade Australia Pty Ltd (ACN 163 237 634), Authorised Representative of Flexewallet Pty Ltd (AFSL 448066). This information is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether it is appropriate for you and read the relevant disclosure documents before making any decision.

Hedging strategies in Derivatives

Last updated: August 9, 2025

Derivatives contracts allow to almost perfectly hedge the price risk of digital assets. Assume you own 1 Bitcoin (BTC) which currently trades at 35,000 USD and you want to lock in this price. By selling short 35,000 derivatives contracts (each with a contract size of 1 USD on single-collateral derivatives), you have locked in the current price, no matter if BTC moves up or down.

Note: these examples are for demonstrative purposes only and do not include trading fees nor funding rate payouts.

EXAMPLE: PRICE INCREASES

Assume you buy back the derivatives at 40,000 USD. You incur a loss of ( 1 / 35,000 - 1 / 40,000 ) * (-35,000) = -0.125 BTC. Including your original 1 BTC, you now own only 0.875 BTC. At the new spot price of 40,000 USD, this is still worth 0.875 * 40,000 = 35,000 USD.

EXAMPLE: PRICE DECREASES

Assume you buy back the derivatives at 32,000 USD. Your profit is ( 1 / 35,000 - 1 / 32,000 ) * (-35,000) = 0.09375000 BTC. Including your original 1 BTC, you now own 1.09375 BTC. At the new spot price of 32,000 USD, this is still worth 1.09375 * 32,000 = 35,000 USD.

The decimal and thousands separators shown in this article may differ from the formats displayed on our trading platforms. Review our article on how we use points and commas for more information.

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