Hedging with Long and Short Contracts

1. What is Hedging with Long and Short Contracts?

Hedging with long and short contracts on Venkate refers to a strategy where users hold both long and short positions of the same contract type under the cross-margin mode in the contract market. Profits from the long position offset losses from the short position (or vice versa), thereby locking in profits or losses.

2. Full Hedging vs. Partial Hedging

2.1 Full Hedging

Full hedging means that the quantity of long positions is exactly the same as the quantity of short positions of the same contract type. Under normal conditions, these hedged positions will not be subject to forced liquidation because the unrealized profit from one position will entirely cover the unrealized loss of the other. For users, full hedging has the following effects:

• Price fluctuations do not increase the risk of forced liquidation for the current contract.
• Price fluctuations do not affect the account balance.

2.2 Partial Hedging

Partial hedging means that the quantity of long positions is different from the quantity of short positions of the same contract type. Only the profits and losses of the same quantity of long and short positions are offset. For users, partial hedging allows them to either enjoy the net profit or bear the net loss of the positions.