Understand what hedging is, why it works, and how to apply it in crypto. From the insurance mindset and delta-neutral math to correlation-based strategies and common mistakes — everything you need to hedge with confidence.
You insure your home even though you don't expect it to burn down. Airlines hedge fuel costs even when oil prices are stable. Hedging isn't a prediction — it's preparation for outcomes you can't control.
In crypto, hedging means opening an opposing position to offset potential losses on an existing holding. The goal isn't to make money from the hedge itself — it's to protect the capital you already have. For a practical walkthrough of hedging with perps specifically, see Hedging With Perpetual Futures.
Limit drawdowns so a single bad move doesn't wipe out months of gains. Survival is the first rule of trading.
Smooth your equity curve. A hedged portfolio swings less, which means less emotional decision-making and better sleep.
Keep your positions open through turbulence. Hold tokens for staking, airdrops, or governance while neutralizing price risk.
The core concept is simple: you hold two positions that move in opposite directions, so gains on one offset losses on the other. The most common crypto hedge is long spot + short perpetual futures on the same asset — creating a delta-neutral position.
You hold $10,000 of ETH on spot. To hedge, you open a $10,000 short ETH perpetual. Here's what happens at different price moves:
| ETH Move | Unhedged P&L | Full Hedge P&L | 50% Hedge P&L |
|---|---|---|---|
| −20% | −$2,000 | $0 | −$1,000 |
| −10% | −$1,000 | $0 | −$500 |
| 0% | $0 | $0 | $0 |
| +10% | +$1,000 | $0 | +$500 |
| +20% | +$2,000 | $0 | +$1,000 |
A full hedge eliminates all price movement — both gains and losses. A 50% hedge cuts exposure in half. The right hedge ratio depends on your conviction and risk tolerance.
There are several ways to reduce exposure in crypto. Each has different trade-offs in terms of cost, complexity, and effectiveness. Perpetual futures are the most practical tool for active hedging — and the primary instrument available on Dexly.
Pros: Precise sizing, no expiry, high liquidity, available on Dexly
Cons: Funding costs, requires margin, liquidation risk
The dominant hedging tool in crypto
Pros: Simplest approach — just sell to USDC/USDT
Cons: Loses the position entirely, tax event, no staking/airdrop eligibility
Best for full exits, not hedging
Pros: Reduces concentration risk, passive
Cons: Soft hedge only — correlations spike in crashes, imprecise
Complementary, not a replacement for active hedging
Pros: Defined max cost (premium), asymmetric payoff
Cons: Limited availability in crypto, complex pricing, expensive in volatile markets
Growing but still niche for most crypto traders
You don't always need to hedge each asset individually. Because most crypto assets are correlated with BTC, a single BTC short can serve as a broad market hedge. Understanding correlation and beta helps you size these hedges correctly.
| Asset Pair | Typical Correlation | Hedge Implication |
|---|---|---|
| BTC / ETH | ~0.85 | Strong — BTC short hedges most ETH exposure |
| BTC / SOL | ~0.75 | Good — BTC short provides decent coverage |
| BTC / Stablecoins | ~0 | None — stables are already neutral |
| BTC / Gold | ~0.1–0.3 | Weak — gold is not an effective crypto hedge |
Beta measures how much an asset moves relative to BTC. If SOL has a beta of 1.5 to BTC, a 10% BTC drop implies a ~15% SOL drop. To hedge $10,000 of SOL with a BTC short:
For precise exposure management on individual assets, consider hedging each position directly. See Position Management for sizing techniques.
Hedge on Hyperliquid
A delta-neutral position has zero net directional exposure — price movements don't affect your P&L. The most popular delta-neutral strategy in crypto is the cash-and-carry trade: hold spot and short the perp to collect funding income.
You hold $10,000 ETH on spot and short $10,000 ETH perp. Funding rate is 0.01% per 8 hours (a common rate in bullish markets).
| Metric | Value |
|---|---|
| Position Size | $10,000 spot + $10,000 short perp |
| Funding Rate | 0.01% per 8 hours |
| Daily Funding Income | ~$3.00 (3 funding periods) |
| Monthly Income | ~$90 |
| Annual Income | ~$1,095 |
| Annualized Return | ~10.95% APR |
Returns scale with funding rates. During high-sentiment periods, rates can reach 0.05-0.1% per 8 hours, pushing annualized yields well above 20%. During quiet markets, yields drop to low single digits. For deeper coverage of funding strategies, see Funding Rate Strategies.
The right hedging approach depends on market conditions. What works in a bull market is wrong for a bear market. Here's how to adapt.
When: Prices trending up, positive sentiment
Why: Protect unrealized gains without selling winners
How: Trail a partial hedge (25-50%) behind your portfolio. Increase hedge size as positions grow. Funding is usually positive, so shorts earn yield.
When: Prices trending down, negative sentiment
Why: Survive the drawdown with capital intact
How: Full hedge or heavy hedge (75-100%). If you are holding for long-term reasons, hedge the entire position. Preservation is the priority.
When: Price chopping in a range, no clear trend
Why: Earn yield while waiting for direction
How: Delta-neutral funding farming. Hold spot + short perp and collect funding payments. Ideal environment for cash-and-carry strategies.
When: Token unlocks, upgrades, macro announcements
Why: Protect against binary outcome uncertainty
How: Hedge before the event, lift after. Use a full or near-full hedge. Once the event resolves and direction is clear, remove the hedge and trade directionally.
Hedging is straightforward in theory but easy to get wrong in practice. These are the mistakes that trip up most traders. For leverage-specific risks, see Leverage & Liquidation.
Hedging 100% of your portfolio in a bull market kills all upside. You pay funding costs for protection you may not need.
Fix: Match hedge ratio to your actual risk outlook. In a bull market, 25-50% is usually sufficient.
Your hedge doesn't match your exposure. A $5,000 short against a $10,000 position only covers half your risk.
Fix: Calculate hedge size precisely. Account for beta when cross-hedging with a different asset.
Holding a hedge for months with negative funding quietly drains your account. Small hourly payments compound into significant costs.
Fix: Track cumulative funding paid. Set a maximum cost threshold and unwind if funding exceeds it.
As price moves, your hedge ratio drifts. A $10k spot / $10k short becomes $12k spot / $8k short after a 20% rally.
Fix: Rebalance weekly or when the hedge ratio drifts more than 10% from target.
Using 10x or 20x leverage on your hedge means a moderate adverse move liquidates the hedge, leaving you fully exposed.
Fix: Use 1-2x leverage for hedges. Cross margin is preferred. A hedge must survive volatility.
If you're genuinely bearish on an asset and have no reason to hold it, hedging adds unnecessary cost and complexity.
Fix: Ask: why am I holding this? If there's no reason (staking, airdrops, tax), just sell the position.
Hedging on Dexly is straightforward. Follow these three steps to protect your portfolio using perpetual futures on Hyperliquid.
Review your spot holdings and determine which positions you want to protect. Calculate the total dollar value of the exposure you want to hedge.
Short the perpetual for the asset you want to hedge (or use BTC as a proxy for a portfolio hedge). Match the notional value to your desired hedge ratio. Use 1-2x leverage and cross margin.
Check your hedge ratio as prices move. Rebalance when the ratio drifts more than 10% from target. Track cumulative funding costs and adjust or unwind if conditions change.
Cross margin is recommended for hedged positions — it uses your full account balance as collateral, reducing liquidation risk on the hedge leg.
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Risk Warning: Trading perpetual futures involves significant risk of loss. Only trade with capital you can afford to lose. Dexly is a non-custodial interface; you are responsible for your own funds and trading decisions.
Hedge on Hyperliquid
