Byline: Jason Phillips Byline: Jason Phillips Bitcoin futures allow market participants to manage exposure to BTC price fluctuations without selling their holdings. A hedge can reduce downside risk, provide portfolio stability, and improve capital efficiency. This guide explains the basics of bitcoin futures, how hedging works, the difference between perpetual and fixed-maturity contracts, and key factors that affect hedge cost and effectiveness. Understanding bitcoin futures and hedging basics A bitcoin futures contract is an agreement to buy or sell BTC at a fixed price on a future date. Futures are often used for hedging: instead of selling bitcoin, a holder can take a short position in a futures contract, which gains value if BTC prices fall. Exchanges such as Kraken offer bitcoin futures, and details of contract specifications can be found on Kraken Futures. Kraken Futures When a futures position is used as a hedge, it offsets changes in spot BTC value. A short futures contract increases in value as the underlying asset declines, which can compensate for losses in held bitcoin. The effectiveness of the hedge depends on the size of the futures position relative to the size of the spot holding. Types of bitcoin futures There are two main categories of bitcoin futures contracts. Perpetual contracts do not have an expiry date and rely on funding payments exchanged between long and short positions to keep prices aligned with spot markets. Fixed-maturity contracts, by contrast, settle on specific dates such as monthly or quarterly expirations, and they do not involve ongoing funding costs. Perpetuals are commonly chosen for open-ended hedges, while fixed-maturity contracts can be preferable for situations where the desired hedge aligns with a defined timeframe. Calculating a hedge ratio Hedging requires aligning the size of the futures position with the amount of bitcoin exposure being protected. A simple formula is often used: Hedge Ratio = Spot Value ÷ Futures Price Hedge Ratio For example, if someone holds $150,000 worth of bitcoin and the relevant futures contract trades at $148,000, the ratio is roughly 1.01. The calculation then needs to be adjusted for contract size, since different venues may list standard, micro, or linear contracts. Many exchanges provide calculators to simplify this process and to incorporate contract specifications directly. Cost factors in hedging The cost of maintaining a hedge depends on several elements. Trading fees are charged when opening or closing contracts, and these are published by each exchange. Kraken’s fees are detailed in its fee schedule. Perpetual contracts also include funding payments exchanged at regular intervals. Depending on market conditions, these payments may benefit short positions or increase their cost. Leverage also plays a role. While higher leverage reduces the amount of collateral required, most hedgers use moderate levels in order to reduce the risk of forced liquidation. fee schedule Implementing a hedge Establishing a hedge begins with determining the appropriate hedge ratio. The trader then selects whether a perpetual or fixed-maturity contract is most suitable. Collateral is posted to meet margin requirements, and the hedge is entered by opening short positions sized to match the underlying exposure. Positions are then monitored and adjusted if the amount of spot bitcoin held changes or if market conditions shift. Reduce-only orders are sometimes used to ensure that a hedge does not unintentionally increase exposure. Risk management strategies Effective risk management is essential when using futures for hedging. Stop-loss and take-profit orders can be set to define outcomes in advance. Margin can be allocated in different ways: isolated margin confines risk to a single position, while cross margin spreads collateral across the account but can expose all positions if losses accumulate. Many hedgers maintain collateral well above the maintenance requirement to lower the chance of liquidation. For ongoing or larger hedges, automation through APIs or alerts can assist with rebalancing and monitoring. Frequently asked questions How do I size a bitcoin futures hedge? How do I size a bitcoin futures hedge? The hedge ratio, calculated as spot value divided by futures price, provides the required number of contracts. The figure must then be adjusted for the size of each contract listed on the exchange. What are funding payments in perpetual contracts? What are funding payments in perpetual contracts? Funding is a periodic transfer between long and short positions designed to keep perpetual contract prices aligned with spot markets. When funding is positive, longs pay shorts; when negative, shorts pay longs. Which type of contract is more cost-effective for hedging? Which type of contract is more cost-effective for hedging? Perpetual contracts provide flexibility but include funding costs. Fixed-maturity contracts avoid funding altogether but may require rolling into new contracts once they expire. Can BTC be used as collateral? Can BTC be used as collateral? Some exchanges allow bitcoin or other digital assets to be posted as margin. Policies vary by venue.

This story contains new, firsthand information uncovered by the writer.

The writer is smart, but don't just like, take their word for it. #DoYourOwnResearch before making any investment decisions or decisions regarding your health or security. (Do not regard any of this content as professional investment advice, or health advice)

Bitcoin Futures Hedging Guide: Cost-Effective Strategies for 2025

About Author

Comments

TOPICS

THIS ARTICLE WAS FEATURED IN

Related Stories

Untitled Story

$INK: The Solana Memecoin with a Vision for Utility

$DEFI Token Hits 7 Major Exchanges: A Milestone Achievement

$JTC Network To List On BitMart Exchange

$500k Presale: TG.Casino Passes Milestone with Upcoming Telegram-Powered Platform

$3 Million in Seed Funding for Web3 Founders Announced By Necto Labs

$INK: The Solana Memecoin with a Vision for Utility

$DEFI Token Hits 7 Major Exchanges: A Milestone Achievement

$JTC Network To List On BitMart Exchange

$500k Presale: TG.Casino Passes Milestone with Upcoming Telegram-Powered Platform

$3 Million in Seed Funding for Web3 Founders Announced By Necto Labs

Light-Mode

Classic

Newspaper

Dark-Mode

Neon Noir

Minty

HN StartUps