Hedge Mode Strategy, Pros and Cons
Bidirectional Trading (Hedge Mode) in Bitcoin futures trading is a futures feature that allows you to place both long and short positions simultaneously. Simply put, if you buy long and short Bitcoin at $20,000, the profit and loss ratio is 0, and it becomes a hedging order. Hedging is a trading strategy to reduce futures risks and can be used when you’re not 100% sure about the future direction.
Features of Bidirectional Trading (Hedge Mode)
Bitcoin bidirectional trading means entering the market simultaneously at a specific price, so the profit and loss ratio is 0% regardless of whether the futures price rises or falls. This is because one side gains as much as the other loses.
You hold two orders and trade the other position when a downward or upward trend is confirmed. For example, if it’s an upward trend, clear the short position and continue holding the long.
The advantage of this strategy is to minimize profit and loss risks. For instance, if you enter a one-way short position expecting the price to fall.
But, if the price rises contrary to your expectations and you incur a loss, you would suffer a 100% loss if you stop loss. However, if you had entered a long position as well, you could have minimized the profit and loss risk.
Pros and Cons, Precautions, and Tips
n fact, there’s no 100% correct answer in bidirectional trading strategies, and it’s not always beneficial. Continuous stair-step declines or rises may be more stable and profitable in one-way mode with low-cross water ride, and bidirectional trading can lead to more losses.
- If a bidirectional liquidation beam occurs, both positions can suffer significant losses.
- You must be able to make quick decisions based on market flow.
- Those who find one-way mode trading challenging have almost a 0% chance of success in bidirectional trading.
- Fees are doubled, so you must be able to accurately calculate the profit and loss ratio including fees.
- It’s good for scraping profits up and down, but as mentioned above, you need to make quick decisions (water riding).
Setting Bidirectional Trading in Different Bitcoin Futures Exchanges
Bitget’s bidirectional mode (hedge mode) setting can be found by clicking the gear icon in the top right, where you can select either One-way Mode or Hedge Mode in the sidebar.
- In the app, click the ··· next to the chart icon on the trading page.
- Click Futures settings and set it in the USDT-M tab.
Binance’s bidirectional mode (hedge mode) setting is similarly applied.
Bybit’s bidirectional setting can also be set by clicking the gear icon on the trading page.
MEXC’s bidirectional setting is as shown in the image above.
Difference Between One-way Mode and Hedge Mode
The one way and hedge mode features of all futures exchanges are almost 99% similar, so understanding one place makes it easy to understand others.
One way mode, as shown in the image, focuses only on one position for order settings.
Features of Hedge Mode
In bidirectional, individual leverage settings are possible for each position, and liquidation can be done individually through the Close tab.
- The Open tab is the order window for entering or increasing the water-riding quantity.
- The Close tab allows you to sell or partially sell each entered position.