Science Popularization Topic: What is hedging and why are some people being liquidated The recent manipulation of demonic coins is known as' short selling ', which means controlling the market to raise spot prices and allowing short sellers to liquidate their positions, resulting in mutual profits for their own positions. It is worth mentioning that a large part of the people who were bombed out were "hedging", especially early investors, airdrop enthusiasts, KOLs, and so on. What exactly is' hedging ', and what are its uses and risks? Let me give you a clear inventory in one article. Let's sneak in! ⬇️ Hedging, as the name suggests, is a method of pursuing asset preservation. In the context of the cryptocurrency industry, hedging is the process of hedging against price volatility risks by establishing positions in opposite directions between spot and derivative products, locking in value, and preventing losses caused by fluctuations. Speak human language and break it down. Spot: Holding or about to hold (airdrop) Derivatives: mainly contracts Hedging: opening equal and opposite contracts Result: Spot prices rise and fall, total asset value remains unchanged What is this supposed to do? I'll give you an example and you'll understand immediately. Assuming you are about to receive an @ edgeX_exchange airdrop, the airdrop has not been sent yet, but the contract market already exists. Based on the current market value of the contract, you estimated that you could receive an airdrop worth approximately 100000. There are two situations at this point: ▰ Rise: Value of 150000 upon receipt of coins ▰ Decline: Value of 50000 when receiving coins At this point, do you need to make a choice based on your own judgment, whether to hold on or lock in 100000 in advance? Smart as you slapped your thigh, you thought that everyone would sell their airdrops at the opening and there was a high probability that they would fall. You decided to lock in 100000 in advance, and if it rose, you would admit defeat. If it fell, you could guarantee the current value. So you can do this: Open a short order worth 100000 in the contract market, and when the price changes, the value changes as follows: Open empty → 50% surge before airdrop: Contract profit and loss -50000 ↳ Airdrop to account: spot profit and loss+50000 Total profit and loss: 0 Open empty → Drop 50% before airdrop: Contract profit and loss+50000 ↳ Airdrop to account: spot profit and loss -50000 Total profit and loss: 0 In short, before the airdrop, you took on the risk of 'bare air', and after the airdrop, you used spot money to hedge, resulting in a total profit and loss of 0 and achieving the goal of locking in 100000 in advance. You must have noticed carefully that there are still many things that have not been mentioned, the most important of which are the funding rate and leverage. / The funding rate is a subsidy given to short sellers based on the direction of the currency price when opening a contract, or vice versa. If the funding rate is negative, then short sellers have to pay the long sellers. Special attention should be paid to the funding rate and frequency of collection. The platform will adjust the rate based on transactions, which can sometimes be very exaggerated. Your hedging income is not enough to pay the funding rate! This must be included in the cost calculation. Leverage is also very important, as it involves both capital efficiency and risk. There are many ways for us to create 100000 equivalent empty orders, such as 1x or 10x . The initial margin for 1x is 100000, which is almost impossible to liquidate, but you need 100000 to be deposited and occupied; The initial margin for 10x is only 10000, but if the price increases by 9.5%, you will be liquidated and lose the margin. You can set leverage based on your own funds and risk preferences, but please be sure to note that dog trading is very risky. MMT SOON AIA, a Dogecoin that can explode dozens of times in a short period of time, will explode completely with just a little leverage. This is targeted sniping and hunting. Simple memory: 1x hedging=no liquidation=locked value / To sum up, the conventional method of locking airdrop value through hedging is to open an equivalent short order, which requires comprehensive consideration of funding rates, margin, leverage, liquidation prices, and other factors. If you seek stability, then honestly and fully open 1x margin. If you want efficiency and are willing to take risks, then slightly increase leverage, but be sure to pay attention to the liquidation price. This is the most superficial introduction to hedging, which contains a lot of details, and there may be errors in the details. It requires repeated practice and learning during actual operation. I would like to reiterate that contracts and leverage are neutral financial instruments, and there is no inherent goodness or badness in them. It depends on how you understand and use them. According to the general logic, learning and understanding the principles before applying them is often overlooked by many people. The first step is to learn and understand how to die, and even after dying many times, one still doesn't know. Have you figured it out? Welcome to leave a message, ask questions or provide corrections, and communicate together. / Author: Anymose | A Soft Core Science Popularization Writer This article is for educational purposes only and does not constitute any investment advice. Always remember DYOR!