Overview
In the realm of futures trading, two prevalent modes are hedging mode and one-way mode. This article will provide a comprehensive introduction to both trading modes. By default, SorooshX sets its futures trading to hedging mode, which allows users to hold both long and short positions for the same futures simultaneously. It is crucial to keep in mind that trading futures involves inherent risks. Therefore, ensure that you are well-prepared and possess a clear understanding of how futures operate before engaging in trading.
What Are Hedging Mode and One-Way Mode?
In futures trading, investors typically utilize two common modes: hedging and one-way. As the name suggests, in one-way mode, you are limited to holding positions in a single direction for the same trading pair. In contrast, hedging mode permits you to maintain both long and short positions for the same futures trading pair. This mode is often employed to minimize risks and safeguard positions, regardless of market conditions; however, it is important to note that it does not guarantee a completely risk-free trade.
SorooshX futures trading defaults to hedging mode; however, investors have the flexibility to switch between both modes at any time. You can alter the mode for SorooshX USDT-M Futures, Coin-M Futures, and USDC-M Futures. The changes made will apply to all trading pairs under the respective futures type. For instance, if you change the mode for USDT-M Futures from hedging to one-way, all USDT-M Futures trading pairs will only permit one-way positions. This adjustment will not affect Coin-M Futures or USDC-M Futures trading pairs. However, keep in mind the following points:
- You cannot switch modes if you have open positions in any pair.
- Although trading is restricted to one direction (long or short) in one-way mode, your net trading value remains unchanged. For example, in hedging mode, you can go long on 5 BTCUSDT and short 2 BTCUSDT simultaneously. If both positions are closed successfully, you will have a net remaining value of 3 BTCUSDT. In one-way mode, achieving the same outcome would involve first buying 5 long BTCUSDT positions and then selling 2 long BTCUSDT positions.
- When in one-way mode, it is advisable to use the reduce-only order type. This order type can only be applied to current positions opened in one-way mode, ensuring that new orders only reduce existing positions rather than increase them.
- Currently, SorooshX Copy Trading does not support one-way mode. When an elite trader opens a position in one-way mode, their copiers will not receive this trade signal (the position will not be copied). The system will not replicate trades for copiers using one-way mode when the elite trader they are following initiates a new trade in hedging mode.
- The default trading mode for SorooshX futures is hedging mode, and users must manually select one-way mode if desired.
Key Differences Between Hedging Mode and One-Way Mode
Before deciding between hedging mode and one-way mode, it is important for investors to understand some key aspects related to these modes, including risk control, openable positions, and applicable scenarios.
Risk Control
For beginners, the risk of liquidation is generally higher in one-way mode than in hedging mode. To help mitigate this risk, SorooshX has implemented different risk margin calculations for positions in one-way mode. Notably, SorooshX is the only exchange that utilizes this complex risk margin mechanism, which has proven highly effective in assisting investors in avoiding liquidations. For more information on margin and risk margin, please refer to SorooshX Beginner's Guide — Introduction to Margin Mode.
The risk margin calculation formulas for both modes are as follows:
Hedging Mode:
Risk Margin (for a single trading pair) = max {maintenance margin for short positions + maintenance margin for long positions} + risk margin of all short positions + risk margin of all long positions
Risk Margin (for a single trading pair) = max {maintenance margin for long positions, risk margin for open long positions} + maintenance margin for all selling positions + risk margin of open selling positionsIt is important to note that if your margin balance falls below the risk margin level, SorooshX will automatically notify you. If no action is taken and your margin balance remains below the maintenance margin, your position will be liquidated.
Openable Positions
Openable positions refer to the maximum quantity that can be bought or sold for a specific trading pair at a given price, based on the current leverage in the user's account. The limits on openable amounts under one-way mode and hedging mode may differ. The calculation of openable positions for both long and short positions of a trading pair is based on the corresponding available funds for long and short positions, respectively.
Before opening new positions, SorooshX users should always consider margin requirements, especially if they have existing open positions. Margin requirements are influenced by the current leverage level, particularly in one-way mode (where orders can only be placed in one direction), with price being a critical factor.
Applicable Scenarios
Both hedging mode and one-way mode cater to different trading scenarios. Hedging mode, which permits the opening of positions in both long and short directions, is particularly advantageous in volatile markets, enabling traders to capitalize on price differentials. When managed effectively, it can prevent losses from market fluctuations and even reduce the costs associated with long and short positions amidst market oscillations—the larger the price fluctuations, the higher the potential profit.
You might wonder: Why not rely on a stop-loss? If you believe a market trend will continue but are concerned about a short-term sharp decline that could liquidate your long position, hedging mode could be the right choice. By opting for cross margin mode, both long and short positions can share the margin, offsetting each other's profits and losses (PnL), thus preventing liquidation and enhancing fund efficiency. This allows you to wait for a trend reversal for potential profits without missing market opportunities.
Essentially, hedging proves beneficial in volatile market conditions characterized by significant price swings. Investors can open both long and short positions, potentially profiting from both, provided they manage their positions effectively, maintain adequate margin, and seize opportunities. While hedging mode is typically used to mitigate risks and protect positions, it does not guarantee a completely risk-free trade.
On the other hand, one-way mode is more suitable for markets trending in a single direction. Its simplicity is its advantage: once you open a position in the correct direction, you can quickly realize profits. If your analysis turns out to be incorrect, you can promptly close your positions and exit the market.
For example, if you open a long position with 10,000 USDT in Bitcoin and the market moves against you, resulting in a floating loss of 5,000 USDT, you might decide to adopt a bearish stance by opening a short position with 20,000 USDT. Since only one direction is allowed, your position will shift to the side with the larger volume, effectively covering your long position with the short.
In conclusion, both hedging and one-way modes present distinct advantages for traders. It is essential for investors to choose the trading mode that aligns with their risk preferences, market insights, and technical abilities. Regardless of the mode selected, one critical aspect for investors remains: position management. Only by exercising strict control and maintaining sufficiently small positions can traders create room for maneuvering in the dynamic world of futures trading.