Tracking Net Exposure Across Accounts

For beginners entering the world of crypto trading, understanding your total market exposure is crucial. This article focuses on how to manage the assets you hold directly in the Spot market alongside your positions taken using a Futures contract. The main goal is to ensure you are not accidentally overexposed or underexposed to market moves, even when using both methods simultaneously. The key takeaway for a beginner is to start small, use partial hedging only when you understand your underlying spot asset, and prioritize capital preservation over chasing large gains.

Balancing Spot Holdings with Simple Futures Hedges

Many traders hold assets long-term in their spot wallets, perhaps following a Spot Dollar Cost Averaging Strategy. When you start trading Futures contracts, you introduce leverage, which changes your risk profile significantly. Your net exposure is the sum of your spot holdings plus your futures positions (long futures add to exposure; short futures subtract from exposure).

Defining Net Exposure

Net exposure is simply: (Spot Amount) + (Futures Amount).

If you hold 1 Bitcoin (BTC) in your spot wallet and open a long futures position equivalent to 0.5 BTC, your net exposure is 1.5 BTC long. If you open a short futures position of 0.5 BTC, your net exposure is 0.5 BTC long.

The Concept of Partial Hedging

A full hedge means neutralizing your spot risk entirely by opening an equal and opposite futures position (e.g., 1 BTC spot held, 1 BTC short futures opened). However, a full hedge means you miss out on potential upside if the market goes up, and it may incur higher Funding Rate Mechanics for Long Term Holders.

A partial hedge is often a better starting point. This is where you use futures to protect only a portion of your spot holdings against a short-term downturn. This technique is detailed further in Simple Futures Strategy for Existing Spot.

Steps for Partial Hedging:

1. Determine your risk tolerance for the spot asset. How much can you afford to lose temporarily? 2. Decide what percentage of your spot holding you want to protect. For example, if you hold 10 ETH, you might decide to hedge 30% against a potential drop. 3. Open a short futures position equivalent to that percentage (e.g., short 3 ETH futures). 4. Your net exposure is now 7 ETH long spot plus a 3 ETH short hedge, resulting in a net exposure of 7 ETH long. This reduces variance but does not eliminate risk, as noted in When a Full Hedge Is Unnecessary.

Always remember that futures trading involves potential liquidation if margin is insufficient. Review Avoiding Liquidation by Monitoring Margin regularly.

Using Indicators for Timing Entries and Exits

While hedging manages existing portfolio risk, indicators help you decide *when* to initiate new trades or adjust existing hedges. Indicators are tools, not crystal balls, and should always be used in conjunction with sound Risk Management : Balancing Leverage and Exposure in Crypto Futures.

Relative Strength Index (RSI)

The RSI measures the speed and change of price movements, oscillating between 0 and 100.

Readings above 70 are often considered "overbought," suggesting a potential pullback might occur.
Readings below 30 are often considered "oversold," suggesting a potential bounce might occur.

For beginners, avoid taking trades solely because the RSI hits 70. Look for confluence. For example, if the price is testing a major resistance level *and* the RSI is overbought, that situation warrants caution. See Interpreting Overbought Readings with RSI for more detail.

Moving Average Convergence Divergence (MACD)

The MACD helps identify momentum shifts. It uses moving averages to generate signals.

A bullish crossover (MACD line crosses above the signal line) suggests increasing upward momentum.
A bearish crossover suggests momentum is slowing or reversing.

Be cautious, as the MACD can lag the market, leading to false signals or "whipsaws" in sideways markets. Understanding this lag is key, as discussed in Using MACD Crossovers for Entry Timing.

Bollinger Bands

Bollinger Bands consist of a middle moving average and two outer bands representing standard deviations from that average. They measure volatility.

When the bands contract (squeeze), volatility is low, often preceding a large move.
When the price touches or breaks the upper band, it can sometimes signal an extreme move that might reverse, but it can also signal a strong trend continuation.

Do not treat band touches as automatic buy/sell signals. They are best used to gauge current volatility relative to recent history, as explained in Bollinger Bands and Volatility Context.

Risk Management and Trading Psychology

Even with perfect technical analysis, poor psychology can destroy capital. When managing your net exposure, discipline is paramount. We must manage risk before we consider reward, which relates to Calculating Simple Risk Reward Ratios.

Pitfalls to Avoid

Fear Of Missing Out (FOMO): Seeing a rapid price rise and jumping in without a plan, often resulting in buying at a local top. This is covered in Managing Fear of Missing Out in Crypto.
Revenge Trading: Attempting to immediately recoup a small loss by taking a much larger, riskier trade. This cycle leads directly to larger losses, as detailed in Recognizing and Stopping Revenge Trading.
Overleverage: Using high leverage on futures trades, which drastically increases the chance of hitting your liquidation price, even if your spot position is small. Always review Sizing Positions Based on Account Equity before entering any leveraged trade.

Setting Strict Limits

When hedging or trading futures, always define your exit points beforehand.

1. Define your maximum acceptable loss per trade. 2. Set a Setting a Stop Loss for Long Positions immediately upon entering the trade. 3. If you are using futures to hedge, define the point where the hedge is no longer necessary (e.g., if the underlying asset drops below a key support level, you might close the hedge to participate in the potential bounce).

If you are using futures to supplement income on existing spot assets (e.g., by shorting slightly when you anticipate a small dip, as in Using Futures to Earn Yield on Spot), ensure the potential yield outweighs the transaction costs and the risk of the hedge failing.

Practical Sizing and Risk Examples

Let's look at a simple scenario involving 100 units of Asset X held in the Spot market. You believe Asset X might drop 10% soon but you do not want to sell your spot holdings because you believe in its long-term potential (Spot Portfolio Diversification Basics).

You decide to partially hedge 50% of your position (50 units). You use a short Futures contract position equivalent to 50 units of Asset X.

Scenario Details:

Metric	Value (Units of Asset X)
Spot Holding	100
Futures Hedge (Short)	50
Net Exposure	50 Long
Price Drop (10%)	Loss on Spot: 10 units lost value. Gain on Futures: 5 units offset.

If the price drops 10%: 1. Your spot value drops by 10 units' worth of price movement. 2. Your short futures position gains the equivalent of 5 units' worth of price movement (since you hedged 50 units). 3. Your net loss in value, adjusted for the hedge, is equivalent to only a 5-unit drop in value, significantly less than the 10-unit drop without the hedge.

This illustrates how partial hedging smooths volatility. Remember that fees and the Funding Rate Mechanics for Long Term Holders will slightly reduce your gains or increase your losses over time, so these calculations are simplified. Always consult Scenario Planning for Market Scenarios for more complex situations.

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Tracking Net Exposure Across Accounts

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