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Hedge Mode
What is Hedge Mode and How to Use It?

What is Hedge Mode and How to Use It?

2020-04-06 06:26

What is Hedge Mode?

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.

What is the difference between one-Way Mode and Hedge Mode?

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

How to switch between One-Way Mode and Hedge Mode?

1. Open the trading interface and click [USDⓈ-M] or [COIN-M] on the top navigation bar.
2. On the top right, click the [Parameters] icon, then select [Preference], and click [Position Mode].
3. Select either [One-Way Mode] or [Hedge Mode].
Please note that Position Mode cannot be adjusted while you have open positions or open orders.
4. A pop-up window will appear in the lower right corner of the screen once the Position Mode is successfully adjusted.

Example trading strategy using Hedge Mode

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 22000 USDT to 19000 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.
Please note that the following trading strategy example is for illustrative purposes only. It is not intended to be taken as financial or investment advice.
Binance does not endorse or guarantee any specific trading strategy or outcome and will not be held responsible for any losses or damages that may result from using this example as guidance for your own trading activities.