With the completion of our platform upgrade on Jan 8, we’re excited to release a long-awaited feature on WOO X - Hedge Mode!
Let’s learn a little more about what Hedge Mode does, why traders should use it, and most importantly, how we’ve designed it differently from other exchanges to further enhance capital efficiency for traders on WOO X.
What is Hedge Mode?
Hedging is a trading strategy commonly used in futures trading in order to limit or offset risks of any adverse price movements.
By introducing hedge mode, we are empowering traders to hedge their trades by allowing them to open both long and short positions simultaneously without having to close either of their positions.
Traders can utilize Hedge Mode to profit from market fluctuations while reducing potential losses at the same time.
When to consider using Hedge Mode
- Minimizing losses while holding on to a core long-term position
Let’s imagine that you have a long-term perp ‘long’ position in a trading symbol (e.g ETH-PERP) that you have a high conviction in, direction-wise.
While you may be right in your directional call over the long-term, short-term volatility and large price swings can often take out most traders if no proper risk management is in place.
Hedging allows you to easily hedge against losses if the market moves against your long-term position in the short-term, without touching your long term position.
- Hedging around outcomes of major macro events
Macro events and news such as the potential approval, rejection or even just rumors (from sneaky social media interns) of the BTC spot ETF could potentially work against your current position in an unexpected manner.
Hedging allows you to quickly react to the potential outcomes of these events, and mitigate potential losses.
- Strategy performance attribution
As positions are aggregated in one-way mode, attributing the performance to individual trades using different strategies may become difficult.
Hedge Mode, with its distinction between individual long and short positions, allows you to assess the profitability of each trade better.
Building it different - Enhancing capital efficiency on WOO X
It wouldn’t be WOO X if we didn’t design this with a little twist to enhance the trading experience for our traders.
Compared to most other exchanges where traders need to maintain separate, full margin amounts for both their long and short positions, traders on WOO X can instead use the same margin to open both a long and short position at the same time.
This is made possible as we’ve designed margin calculation to be based only on the larger of the positional notional between the long v.s the short, meaning traders only need to maintain the margin that is needed on the greater side.
Example: Here we have a total notional value of $131,964 ($87,976 long, $43,988 short), requiring a total margin of only $4,451.57 on 20x leverage, across both positions.
The required margin of $4,451.57 is thus only about 1/20 of the long side ($87,976), which is the larger notional side in this example.
On other exchanges, the required margin may be as high as $6,598.2 (1/20 of $131,964).
The difference? On most other exchanges, traders require up to twice the margin amount of what’s possible on WOO X. Talk about capital efficiency!
How to enable Hedge Mode
With the release of Hedge Mode on Jan 8, users on both desktop and mobile app will automatically see a pop-up with instructions on how to enable it.
To enable Hedge Mode, simply follow these steps:
- On desktop, look under the settings cog in the top right corner of the order entry widget. Click on it, and select ‘Hedge Mode’.
- On the mobile app, click on your ‘Trade’ tab and look for the settings cog at the top right corner to view your trading settings. Look for ‘Position Mode’ and select Hedge Mode.
Note: Please close all your existing positions or pending orders before switching position modes.
And that’s all!
With Hedge Mode enabled, you can now proceed to place your positions as you normally would, only now with the ability to do so in opposite directions.
Viewing your maintenance margin
We’ve also made it easier to view your initial margin and maintenance margin required for your positions.
On the portfolio summary widget (desktop), traders can now view margin-related information and customize or move the columns as desired.
Q: Can I use hedge mode on one symbol and one-way mode on another?
A: No, as position mode is an account-wide setting that applies to all symbols simultaneously.
Q: How is margin charged for hedged positions?
A: Margin is calculated based on the larger of the positional notional between the long and the short.
Q: Will I ever get liquidated if my positions are fully hedged?
A: Your PnL from the hedged positions will net to zero. However, the maintenance margin of your hedged positions could go up as the mark price goes up, so there’s a chance that your hedged positions will still get liquidated when there is a large movement in price vs. where you’ve opened the position.
Q: Will I be able to set separate TP/SLs for my long and short positions?
A: Yes, TP/SLs can be set independently for your long and short positions.
Q: Is hedge mode supported on all the different types of order entry tools on WOO X?
A: Yes, hedge mode is supported across Order Entry X, Y, Z as well as price ladder.
The content above is neither a recommendation for investment and trading strategies nor does it constitute an investment offer, solicitation, or recommendation of any product or service. The content is for informational sharing purposes only. Anyone who makes or changes the investment decision based on the content shall undertake the result or loss by himself/herself.
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