Since its inception, Bitcoin has grown by over eight million percent ROI. Cryptocurrencies across the board have been known to produce astronomical gains for early investors, which lures the masses into buying these speculative and emerging assets using spot positions.
Holding a spot position in crypto is glorious when the market is bullish. The assets trend powerfully, bringing enormous returns in a short period of time. But when trends turn bearish as they have in recent months, these same assets can wipe out fortunes and life savings just as quickly.
Selling coins can be tricky when the time comes, which is why investors are advised to hold. For those that simply must hold, here is a complete guide on how to hedge spot positions using PrimeXBT. We will also provide additional reasons to consider ditching your spot trading positions in favor of margin trading in the future for greater flexibility.
What Is Spot Trading Versus Margin Trading?
When it comes to markets, there is spot trading, margin trading, and options. Spot trading involves buying and selling assets on an exchange, while the latter alternatives require a deposit to be used as account margin for different types of derivatives trading.
Margin trading platforms typically offer leveraged positions –– positions are that much more powerful than what capital would normally allow. Margin trading platforms also provide access to long and short positions for more control over profitability, no matter the direction of the market.
Spot trading platforms are for investors who are seeking to hold crypto assets for a more extended period of time. Margin trading platforms are ideal for traders seeking to earn from the price volatility that takes place across smaller timeframes.
Hedge Positions Explained Using The Bitcoin Correction
When used in conjunction with spot positions, margin trading platforms can essentially act as a hedge position to protect when the market moves against spot positions. Here is an example using the cryptocurrency market over the last several years.
An investor sees the potential in Bitcoin back in 2020, around the time when governments began issuing stimulus packages and increasing the fiat money supply, so they buy BTC to hold for years. All is going well, and they have significantly increased their capital in BTC terms but aren’t yet ready to sell until $100K BTC.
But when the market started to turn bearish, rather than sell their BTC holdings, a spot investor could open a short position on a margin trading platform and protect their capital levels with a hedge position.
How Hedge Positions Can Help A Trader Stay Profitable
A hedge position is a position opened that is designed to hedge or protect a portfolio against losses related to other open positions. For example, a long in ETHUSD would hedge against a short in ETHUSD. A short in BTCUSD is effectively a hedge against spot positions in Bitcoin.
Hedge positions earn value in unrealized profit, while the spot position loses asset value. The trader can make profits from the hedge position while holding the losing spot position or close out the spot position and simply stay profitable without the risk of spot holdings.
Margin trading can keep risk condensed to small increments to capital rather than having an entire life savings exposed to the highly volatile crypto market. As many investors learned the hard way, these assets can experience powerful drawdowns, and valuations can be wiped out.
Protect Capital With PrimeXBT Professional Trading Tools
PrimeXBT provides traders with plenty of additional tools to help traders protect their capital and get the most out of markets. There is stop-loss protection, take-profit orders, built-in technical analysis tools, and much more.
Traders get access to long and short positions on more than 100 different trading instruments, all under one roof. These instruments include crypto, commodities, forex currencies, and stock indices. The most popular and trending assets are included, such as oil, gold, Bitcoin, the S&P 500, and EURUSD.
Users also get access to the Covesting ecosystem of cryptocurrency-based products and services. The Covesting copy trading module connects followers with high-ranked traders in a global leaderboard system, while Covesting yield accounts offer variable APYs on crypto asset staking.
Harness The Power of PrimeXBT Today
Hedge positions can be managed from anywhere in the world using the free PrimeXBT mobile app for Android and iOS devices. The platform is easy to use, packed with professional trading tools, and offers the most compelling features out of any crypto market competitors.
If you are tired of suffering from sinking spot positions, consider opening hedge positions with the power of the PrimeXBT advanced trading platform.
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