What Is Hedge Mode and How to Use It?

Hedge mode is a trading strategy used by Futures traders to mitigate their risk exposure to the market. It involves opening two opposite positions, a long and a short, to profit from any market movement while minimizing potential losses.

In One-way Mode, you can only hold positions in one direction under one contract.

For example, if you open a short position and anticipate that the price will go down in the longer time frame, but you also want to open a long position for a shorter time frame. you won’t be able to open positions in both directions at the same time. Opening positions in both directions would cancel one another out or reduce their sizes.

In Hedge Mode, you can simultaneously hold positions in both long and short directions under the same contract.

For example, you can hold both long and short positions in the BTCUSDT contract at the same time.

1. Open the trading interface and click [USDⓈ-M] or [COIN-M] on the top navigation bar.

2. Click the settings icon at the top right and select [Preference] - [Position Mode].

3. Select [One-Way Mode] or [Hedge Mode].

4. A pop-up window will appear in the lower right corner of the screen once the Position Mode is successfully adjusted.

Let's say you want to invest in BTCUSDT but are unsure about the market's direction. You can enable Hedge Mode to help mitigate your risk.

In this example, you open a 1 BTC long position and a 0.5 BTC short position in BTCUSDT. If the market moves in either direction, you will have a position that profits from that move.

If the BTCUSDT price goes up from 22,000 USDT to 24,000 USDT. The net profit of your long and short position would be (1 - 0.5) * 2,000 = 1,000 USDT.

On the other hand, if BTCUSDT goes down from 22,000 USDT to 19,000 USDT, the net profit of your long and short position would be (1 - 0.5) * (-3,000) = -1,500 USDT. However, this loss is significantly less than if you had only opened a long position 1 * (-3,000) =- 3,000 USDT and the market had gone against you.

By using Hedge Mode, you have reduced your risk and minimized potential losses. This is because your short position helps offset any losses from your long position.