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Hedging
Futures 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 Futures contracts (each with a contract size of 1 USD on single-collateral futures), 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 INCREASESAssume you buy back the Futures 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 DECREASESAssume you buy back the Futures 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.