There are two directions that could be chosen in the cryptocurrency derivatives trading market, which are the bid and ask. Normally, there is only one position mode that could be selected which is the one-way mode, however, in some cases, there is another one that could be used which is called Hedge mode. The definition and difference will be introduced by the following content.
One-way mode, also known as net long or net short position mode, which means only one type of order could be held whether the bid or ask order during the cryptocurrency derivatives trading. The previous order would be closed first when an alternative order is placed. For example, there are 10 long orders holden by the one single owner, however, the positioning strategy is changed and 15 short orders will be placed, what will come out is that the previous 10 long orders will be closed first then the five more short orders will be in the position.
The Advantage of One-way Position Mode
The advantage of one-way mode is that it is for the user to do the position management. Under the one-way mode, the system only allows users to have one direction positions, short or long, bid or ask. This setting would be helpful to the users that reducing the complexity of position management and could facilitate those users who only want to do the cryptocurrency derivatives trading in a straightforward way.
Hedge mode refers to the ability to simultaneously hold more than one position, either long or short in either the same contract or in different contracts. The margin that the two hedge positions occupy, the leverage multiples, and the number of positions do not influence each other, to hedge risk.
In hedge mode, if the market is Bullish in a longer-term time frame, but is Bearish in a shorter time frame, then the trader holding long positions can sell short to take advantage of expectations of a move down in the short term time frame. That is, selling short positions to obtain short-term gains without affecting long positions. Hedge mode can also play a role in locking up the position. If using cross margin, then long and short positions share the position of the Unrealized P&L(unrealized profit and loss) and available account balance. If the held position quantity and leverage multiples are the same at this time, when a position loss, another position profit, the profit and loss of the two position break even, so the user would not be liquidated in cross margin mode.
The Advantage of Hedge Position Mode
The advantage of hedge position mode is that due to the diversity and flexibility of hedge mode, users would be allowed to do a complex operation, for example, hold a long postion for long-term strategy and place multiple short orders to earn the short-term profit. This would bring more chance to the users to earn the profit, however, the strategy is complex and more observations and knowledge by different signals and index is required.
How to choose one-way or hedge mode
One-way position mode and hedge mode can easily be selected in CCFOX, that is, the trader can switch open positions at will. And the open position mode of trading pairs in different settlement currencies would not be affected by each other. For example, USDT Perpetual Contract position in one-way mode and the BTC Reverse Perpetual Contract position can be set as either a one-way position mode or hedge mode.
Traders could take corresponding position modes according to their own trading strategy, for instance, choosing different position modes in different time cycles, or using different position patterns based on trading pairs in different settlement currencies.