Futures Hedging

Futures hedging is the practice of using futures contracts to offset the price risk of an underlying asset. By taking an opposite position in the futures market, a trader can protect their portfolio from adverse price movements.

For example, a holder of Bitcoin can short Bitcoin futures to hedge against a potential market crash. If the price drops, the profit from the short position helps mitigate the loss in the spot portfolio.

This strategy is essential for institutional investors and miners who need to manage their exposure to the highly volatile crypto market. It requires a deep understanding of basis risk and correlation.