Unit 3 · Level 4 · Perpetuals & Funding
Basis, hedging & the pro playbook
The underrated use of perps: HEDGING. Hold 1 BTC you don't want to sell (taxes, long-term thesis) but fear a crash? Short 1 BTC of perps and your net exposure is zero while the hedge is on. Miners, funds and OTC desks live on this. Speculation is perps' loudest use; insurance is their most professional one.
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What you get asked
You hold 2 ETH long-term and short 2 ETH of perps before a scary event. ETH drops 20%. Net result?
The hedge converted price risk into a small known cost. You KEPT the coins and skipped the drawdown. This is what derivatives are FOR.
Match the professional perp use to its goal
Same instrument, four intents, three of them professional. Intent + sizing = the whole difference.
A hedge converts unknown price risk into a small, known ___.
Funding + fees are the insurance premium. Sometimes the premium is worth it, sometimes not. Either way it's now a CHOICE you know how to price.
Why might a hedger prefer shorting perps over just selling the spot?
And re-entry is one click. Selling and rebuying has its own costs and tax events in many jurisdictions. The hedge is a scalpel; selling is a saw. Both valid, different jobs.
Unit synthesis: what single sentence contains this unit's whole wisdom?
Price the funding, respect the cascade, size for survival; they serve speculation or insurance. Machinery, not magic. The boss will test whether that sank in. 🐜
The rest of this unit
Futures without expiry, the funding rubber band, cascades and hedging. Crypto's sharpest machinery.