How to Manage Risks With Hedge Mode in LBank Futures Trading
Cryptocurrency trading is volatile and can be unpredictable sometimes, as such, mastering risk management is the key to trading success. Traders often face the challenge of navigating volatile markets where predictions can turn into painful experiences. However, there is a powerful tool at your disposal to mitigate these risks and significantly enhance your trading profitability — Hedge Mode in LBank Futures Trading. In this article, we will explore the concept of Hedge Mode, its uses, and explore strategies that can improve your trading game.
Understanding LBank Futures Hedge Mode
LBank Futures Hedge Mode (HMO) is a trading strategy that allows traders to simultaneously hold positions in both the long and short directions under the same contract. This unique feature provides a safety net against losses and opens up various opportunities for traders to navigate the market effectively.
Five Key Uses of Hedge Mode on LBank Futures
- Loss Mitigation: One of the primary uses of Hedge Mode is to avert or mitigate losses. Traders can strategically employ long and short positions to counteract adverse market movements, minimizing the impact of potential losses.
- Swing Trading: this involves holding a long position to benefit from an anticipated market upswing and simultaneously having a short position to profit from pullbacks.
- Breaking Even: In situations where a trade is not moving in the desired direction, Hedge Mode can be utilized to break even. Strategically adjusting the size of positions allows traders to balance their losses and gains, ultimately avoiding a negative outcome.
- Loss Recovery: When faced with losses, Hedge Mode can be employed to recover from unfavorable market conditions. It helps you manage both long and short positions, to navigate the market to regain lost ground.
- Avoiding Liquidation: Hedge Mode acts as a protective shield against liquidation. You can employ this strategy to diversify your positions, reducing the risk of being liquidated in the event of adverse market movements.
How to Activate Hedge Mode on LBank Futures
Switching from one-way mode to Hedge Mode on LBank Futures is a straightforward process. Follow these steps:
- Click on the three dots or “more” option on the trading interface.
- Select “Preferences.”
- Under “Position Setting,” switch from the default one-way mode to Hedge Mode.
Once in Hedge Mode, traders will notice the presence of both “Open Long” and “Open Short” buttons, allowing for simultaneous positions in both directions.
Risk Management Strategies in Hedge Mode
- Setting Entry Prices: When utilizing Hedge Mode, pay close attention to entry prices. For pullback strategies, ensure that the entry for the direction you anticipate a pullback is at a favorable level.
- Balancing Coin Sizes: The size of coins in both long and short positions plays an important role in risk management. To keep risks low, it is advisable to make the size of the coin for the direction you intend for pullbacks larger than the other.
- Avoiding Liquidation: To prevent liquidation, never slide the margin usage button above 50%. A safer approach is to keep it at 25% of the desired leverage. This precautionary measure helps in managing risks effectively.
- Equalizing Entry Points: When employing Hedge Mode to break even, ensure that entry points for both long and short positions are equal. This equalization prevents one position from canceling out the other and helps in achieving a balanced outcome.
Real-World Examples of Hedge Mode Strategies
Should you stick with Hedge Mode or just close and reopen positions in wobbly markets? The question boils down to understanding whether it’s smarter to keep both long and short positions at the same time or to leave the market entirely and jump back in later. Let’s use XRP postions as examples using 3 different strategies.
1.Pullback Trading Strategy:
- Initial Long Entry: 0.2818 (Size: 2650)
- Short Entry to Avat Loss: 0.2955 (Size: 4431)
- Strategy: The size of the short position is greater than the long position, allowing for a break-even or profitable outcome.
2. Break-Even Strategy:
- Long Entry: 1.270271 (Size: 2650)
- Additional Short Entry: 1.267 (Size: 493.8)
- Strategy: Buying more of the short position at a lower price than the long entry to break even, resulting in no loss or gain.
3. Wrong Format Strategy:
- Long Entry at Resistance: 0.051350 (Size: 493.8)
- Short Entry at Support: 0.051350 (Size: 5.9)
- Strategy: Placing the short entry at the resistance zone and the long entry at the support zone leads to both positions not making a profit.
Wrapping Up
In conclusion, mastering Hedge Mode in LBank Futures Trading is a powerful tool for traders looking to navigate the complexities of cryptocurrency markets. Hedging is akin to purchasing insurance for your trading positions. Just as you buy insurance for your car to safeguard against accidents, hedging in the crypto futures world safeguards your positions from adverse price movements.
Hedging reduces risk but, at the same time, caps potential profits. It’s not a strategy designed to make money but to minimize risk exposure. Remember, the key to success lies not just in predicting market movements but in effectively managing the risks associated with trading.
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.
