$ETH
Hedging is a financial strategy that aims to reduce the risk of loss.
🔍 In simple terms:
Hedging means "protection from risk".
When you are worried that an investment may go down in price or the market may reverse, you take an opposite trade so that if there is a loss on one side, the other side will make a profit or reduce the loss.
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🔁 Example:
Suppose you have 1 Bitcoin and you think its price may go down.
So you take a Short Position on Binance Futures.
Now if the price of Bitcoin goes down:
Your spot holding will suffer a loss
But the futures short position will make a profit
👉 The net loss will be reduced or eliminated – this is called Hedging.
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⚙️ Hedging Methods:
1. Futures Contracts (e.g. short selling)
2. Options Trading (taking Put Options)
3. Inverse ETFs (for stock markets)
4. Currency Hedging (in Forex)
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📌 Benefits:
Control risk
Limit losses
Protect portfolio
⚠️ Disadvantages:
Hedging can be costly (fees or premium)
You may miss out on profits if the market reverses
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If you want, I can also explain you the complete method of hedging in Binance or the Crypto market.