Hedging in general means any actions that are aimed at minimizing your risks.
Classical hedging is based on changes in prices for some asset and its futures price, which allows traders to compensate their losses on derivatives market with the help of the real asset. In other words, if you buy real bitcoins on exchanges, you can secure yourself from losses by shorting futures on BTC with a broker. And vice versa, if you sell real Bitcoins (for USD or USDT), you can hedge yourself with a long position on the futures market.
This strategy works only for investors with large deposits, who are ready to wait for their profits for a long time.
Hedge funds have worked out an effective technique called “130-30”. It is mainly about opening opposite positions for the same asset. For instance, if you go long for 1 BTC and expect the asset to grow in price, you can also hedge by shorting for 0,33 BTC.
Back in the old days, you had to register one more account and make the opposite positions with it; however, now LH-Crypto offers an easier, more effective option – locking.
Locking gives you an opportunity to open a new order for the same asset, without closing or breaking the previous order. At the same time, your margin goes free, since it’s equal to zero now, and you can use it for other orders.
Locking is not new, it has been used in Forex and Stocks exchanges for decades, there is a plenty of strategies based on locking, and we have to admit that most of them are rather effective. Here’s one of such strategies for Forex.
Locking has never been applied to crypto trading, so we can state that LH-Crypto is a pioneer in this field. What is locking going to be like with the high volatility of crypto assets? We have got interested in it, and we’re now making an experiment to see how it goes – we’ll take the above strategy and apply it to cryptocurrencies. Follow us to see the results!