How to Enter or Exit a Position in Hedge Mode on LBank Futures
Hedging is a crucial strategy in the world of trading, offering traders a way to manage risk and protect profits. In this article, we will explore how to enter or exit a position in hedge mode on LBank Futures. Hedge mode allows traders to hold positions in both long and short directions for the same contract, reducing risk and providing a valuable tool for protecting investments. We will cover the basics of hedge mode, its significance, and practical strategies for using it effectively.
What Is Hedging?
Hedging is a risk management strategy used by traders and investors to protect their investments from adverse price movements. It involves taking offsetting positions in related assets to reduce the overall risk exposure. Just as insurance protects your assets from unexpected events, hedging shields your investments from market volatility.
The primary goals of hedging are:
- Reducing Risk: Hedging helps limit potential losses during adverse market conditions, ensuring that traders don’t suffer significant financial setbacks.
- Protecting Profits: It allows traders to lock in profits when they believe the market might experience unfavorable price movements.
Hedging can be achieved by various means, including using derivatives like futures and options. Traders can hedge their positions by taking opposing positions or using assets with negative or positive correlations.
Where to Find LBank Hedge Mode and One-way Mode
- Access Your Account Preferences: Begin by logging into your LBank Futures trading account. In the top right corner, you’ll find a settings icon, usually represented as three dots. Click on this icon to access your account preferences.
- Select Position Mode: Within the account preferences, you’ll find an option to choose your position mode. Here, you have two choices: “One-way mode” and “Hedge mode.”
One-way Mode vs. Hedge Mode
To understand the value of hedge mode on LBank Futures, it’s essential to understand the default position mode — One-Way Mode.
- One-Way Mode: In One-Way Mode, you are restricted to maintaining positions in a single direction within a given contract. For instance, if you initiate a short position with the expectation of a long-term price decrease, and you also wish to open a long position for a shorter time frame, you’ll find it impossible to establish positions in both directions simultaneously. Attempting to do so would either negate one another or diminish their overall size.
- Hedge Mode: In Hedge Mode, you have the flexibility to concurrently maintain positions in both long and short directions within the same contract. For example, within the BTCUSDT contract, you can maintain both long and short positions simultaneously, capitalizing on market movements in either direction.
How to Enable Hedge Mode?
The position mode is one-way mode by default. You need to enable “Hedge Mode” in the “Preference”.
Step 1: Go to “Setting”. As seen below.
Step 2: Select “Hedge Mode”. Note: Please be noted that you could only adjust the position mode when there is no position or open orders.
How to Open or Close Position in Hedge Mode
In hedge mode, you can now buy long, buy short, sell short and sell long on the same contract at the same time. Here’s how to open or close can do it:
Step 1: Select the contract. Next, go to place order.
Step 2: Place order by selecting either “Open” or “Close”.
Benefits of Hedge Mode on LBank Futures
- Reducing Risk and Securing Profits
Imagine you hold a long position in Bitcoin that has gained in value. You want to protect your profits but don’t wish to close your position, especially during a period of high market volatility. To secure and lock in your profits while weathering the market’s ups and downs, you can open a short position in hedge mode. This short position acts as a hedge against your long position.
If the market goes against your initial trade, your second position can help offset potential losses. Conversely, if the market moves in your favor, your first position gains while the second incurs losses, but your initial profits remain protected.
2. Making Short-term Profits
Sometimes, you may be engaged in a long-term trade and believe in its potential, despite short-term market declines. Hedge mode allows you to maintain your long position while taking advantage of short-term price drops. By opening short positions during these short-term declines, you can make quick profits without compromising your long-term trade.
In both of these scenarios, hedging acts as a risk management tool, offering protection against market turbulence and the ability to exploit short-term price movements. It provides traders with the flexibility to safeguard their investments and maximize their profitability.
Hedge mode on LBank Futures is a valuable feature for cryptocurrency traders, offering a versatile tool to manage risk and protect profits. By allowing the simultaneous opening of long and short positions on the same contract, hedge mode empowers traders to navigate the volatile cryptocurrency market more effectively.
Hedging is more than just a trading strategy; it’s a risk management approach that can safeguard your investments and provide opportunities for short-term gains. While it may reduce potential profits, it also limits the exposure to significant losses, ensuring a more stable and secure trading experience.
Disclaimer: Derivatives are often volatile, and this can be a risky investment. The information provided in this article is solely for educational purposes and shouldn’t be regarded as financial advice.