BitOffer Institution: How to Hedge Your Bitcoin Trading?
As the traditional financial market developed and improved, hedge is one of the mature methods that institutions used to protect the security of the investors’ assets and reduce the risk when investing. But to the Bitcoin market which is still growing, hedge is a concept that few people know and use.
What is “Hedge”?
Hedge is a strategy that investors invest or buy assets or derivatives that related to the volatility of the underlying asset to counteract the potential risk. Hedge is an effective method to manage IRR, FX Risk, Equity Risk, and Merchandise Risk. Its difference to risk diversification management is that hedge can manage the systematic and non-systematic risk.
So, is “Hedge” able to be applied to Bitcoin Trading?
As the bitcoin market grew rapidly, the route map of the bitcoin derivatives is developed and improved well. Whether Bitcoin Options or Bitcoin Futures, they are both qualified to be used to hedge the bitcoin trading on the spot trading market. But Bitcoin Options owns a better performance than Bitcoin Futures does because the essences of the Bitcoins and Bitcoin Options are the spot goods. In addition, the risk of Bitcoin Futures is much more than Bitcoin Options so that the requirements are much more complicated.
After being able to use the Bitcoin derivatives to hedge your bitcoin trading, you will become fearless to the fall of the bitcoins, and trading Bitcoins without any risk.
How to trade Bitcoins without any risk after trading Bitcoin Options?
Bitcoin Options is one of the bitcoin derivatives. For example, BitOffer Bitcoin Options, which requests 0 Fees, 0 Margins and non-exercise, is the best hedge tool to bitcoin trading on the spot trading market. So, how can we hedge the risk by trading Bitcoin Options when the Bitcoin price falls?
For example: Now, a Bitcoin is priced at $8,000.
When the Bitcoin price rises from $8,000 to $9,000, you will earn $1,000 as profits on the spot trading market;
When the Bitcoin price drops from $8,000 to $7,000, you will lose $1,000 on the spot trading market.
The situations above are likely to happen if you never hedge your Bitcoin trading. However, if you hedge your Bitcoin Trading: Buy a put options contract for each Bitcoin you buy on the spot trading market with $20:
When the Bitcoin price rises from $8,000 to $9,000, you would earn $1,000 as profit, and lose $20 on your Bitcoin Options trading;
When the Bitcoin price drops from $8,000 to $7,000, you would lose $1,000 on the spot trading market and earn $1,000 as profit from your put options contract.
In this way, your $1,000 loss on the spot trading is counteracted by $1,000 earn from the put options contract. This is how hedge works on Bitcoin trading.
The other significant feature of Bitcoin Options is that with Bitcoin Options, you can start trading Bitcoins anytime you like. Even you bought Bitcoin at $20,000, if you bought BitOffer Bitcoin Options, you would still earn profits when the Bitcoin price fell. And once the Bitcoin price rises, you will keep earning profits on the spot trading market, and you only lose the premium you bought the put options contract. With BitOffer Bitcoin Options, you will start trading Bitcoins without facing any risk of losing money.
