Trading cryptocurrency seems cumbersome to new traders, especially those new to the crypto space.
There have been a lot of complaints on how volatile cryptocurrencies are and how fast money is lost, the truth is that everyone knows the risk and the profits attached when the trades are done the right way.
This is why every trader should know how to manage and protect their portfolios, either a short-term trader or a long-term one. An important term to be familiar with is Hedging, it is good for managing losses.
Hedging means offsetting the risk of any adverse price movements i.e opening trades to offset another trade that you have already opened.
This means Hedging is used to reduce risk, reducing risk also means reducing profits. So it is very important to note that this is a technique used to reduce potential loss and not one to maximise potential gain.
This is useful when a trader is looking to keep a long-term trade open while still looking to take profit when the trade is retracing (short-term profit), but the main goal is to reduce the potential loss.
You as a trader get to protect yourself from risk with hedging when you open a long-term trade, opening position(s) of the opposite side gets your loss or profit will be covered, no matter how the price changes.
Let’s say you open a long(buy) position and you are hoping to sell at a particular price, but along the trade there happen to be a retracement, you can open a short(sell) position to offset the loss to be incurred by the retracement.
You can then use the profit from the short term trade to buy more, and this is based on your discretion.
Advantages of hedging
– It protects loss, reduces the effect of your loss from trading.
– It reduces trader’s stress and pressure, as one won’t have to worry much about the market going against you.
– It allows you to withstand market’s volatility.
– You get to have short and long-term gains simultaneously
Disadvantages of hedging.
– It eats into profits especially when the market is favouring the trade you are looking to hedge.
– You stand to lose more from spread. Since spread is taken from both opened position, you get to lose when the market does not move.
– Hedging is not beneficial to short-term strategies, you can avoid this altogether if you are a day trader.
OKEx, a world leading cryptocurrency exchange site, has the right environment for crypto currency trading and also an avenue for traders to learn and earn.
It offers Hedging with futures and many other options. You can enjoy this by registering here: https://rebrand.ly/tw-signup
A world-leading cryptocurrency spot and derivatives exchange, OKEx offers the most diverse marketplace where global crypto traders, miners and institutional investors come to manage crypto assets, enhance investment opportunities and hedge risks.
We provide spot and derivatives trading — including futures, perpetual swap and options — of major cryptocurrencies, offering investors flexibility in formulating their strategies to maximize gains and mitigate risks.
Telegram group: https://t.me/OKExAfrica
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