How to hedge your positions on Bybit?

Understanding Position Hedging on Bybit

Hedging is a risk management strategy used by traders to offset potential losses in one position by opening an opposing position. On Bybit, a popular cryptocurrency derivatives exchange, hedging allows users to hold both long and short positions simultaneously on the same trading pair within the Inverse Perpetual and USDT Perpetual contracts. This functionality is available only when your account is in Hedging Mode, as opposed to One-Way Mode, where only one directional position is allowed per symbol.

To begin hedging, ensure your account is correctly configured. Navigate to your Position Mode settings on the trading interface. Click on the current mode indicator (usually displayed near the order entry panel), and select 'Hedged Mode' from the dropdown. Once activated, you can open both long and short positions on the same asset without them being automatically offset. This mode is essential for executing complex strategies such as scalping both sides, locking in profits, or managing exposure during high volatility.

Setting Up Hedging Mode on Bybit

• Access your Bybit trading dashboard and locate the Position Mode indicator, typically found above the order entry section.
• Click on the current mode (e.g., 'One-Way') to open the selection menu.
• Choose 'Hedged Mode' from the options presented.
• Confirm the change. A notification will appear confirming the switch.
• Verify the mode has changed by checking that both 'Buy' and 'Sell' buttons remain active regardless of existing positions.
• Note that switching modes will not close existing positions but will affect how new orders are processed.

This setup is mandatory before any hedging strategy can be implemented. Failure to switch to Hedged Mode will result in new opposing orders closing or reducing existing positions instead of creating independent ones.

Executing Opposite Positions for Hedging

Once in Hedged Mode, you can open multiple positions on the same symbol. For example, if you hold a long position on BTC/USDT Perpetual at $60,000, you can later open a short position at $62,000 without closing the initial long. This creates a partial hedge, reducing net exposure.

To execute this:

• Navigate to the BTC/USDT trading pair.
• With your long position active, enter a sell order using either Limit, Market, or Stop Market type.
• Specify the quantity you wish to short. This can be equal to, less than, or greater than your long position.
• Confirm the order. Upon execution, a separate short position will appear in your Positions tab.
• Monitor both positions independently—they will have their own entry price, liquidation price, margin, and PnL.

Each position must be managed individually, including adjusting leverage, adding or reducing margin, and setting stop-loss or take-profit orders. This granular control allows for precise risk management.

Managing Margin and Leverage in Hedged Positions

In Hedged Mode, each position carries its own isolated margin unless you manually set it to cross margin. To adjust margin:

• Locate the position in the Positions panel.
• Click on 'Add Margin' or 'Reduce Margin' to modify the collateral allocated.
• Choose between Cross and Isolated margin mode for that specific position.
• Confirm the action using your security method (e.g., Google Authenticator).

Leverage can be adjusted per position:

• Find the Leverage slider or input field next to the position.
• Enter the desired leverage (e.g., 10x, 25x). Bybit allows up to 100x on certain pairs.
• Confirm the change. The maintenance margin and liquidation price will update accordingly.

It is critical to monitor the liquidation price of each position, especially when using high leverage. A sharp market move can liquidate one side of the hedge while leaving the other intact, potentially leading to unexpected losses if not managed.

Using Stop-Loss and Take-Profit to Protect Hedged Positions

To automate risk control, apply conditional orders to each position:

• Click on 'Set TP/SL' under a specific position.
• For Take-Profit, enter the price at which you want to close the position for profit.
• For Stop-Loss, set the price to limit losses if the market moves against you.
• Choose whether the order triggers based on Last Price or Mark Price to avoid liquidation due to short-term spikes.
• Confirm each setting.

These orders remain active even if you log out, provided your internet connection was stable when placing them. You can also set trailing stop orders to lock in profits dynamically as the market moves favorably.

Monitoring and Closing Hedged Positions

The Positions tab displays all open long and short contracts. Each shows:

• Side (Long/Short)
• Size
• Entry Price
• Mark Price
• Unrealized PnL
• Liquidation Price
• Margin and Leverage

To close a position:

• Click the 'Close' button next to the relevant position.
• Choose Market or Limit order type.
• Confirm the action. The position will be closed, and PnL settled in your wallet.

You may choose to close one side of the hedge entirely, partially, or let both run until target prices are hit. There is no requirement to close both positions simultaneously.

Frequently Asked Questions

Can I switch back to One-Way Mode with open hedged positions?Yes, you can switch back, but Bybit will prompt you to close all opposing positions first. You cannot maintain both long and short positions in One-Way Mode. The system will require you to manually close one side before allowing the mode change.

Does hedging eliminate risk on Bybit?No, hedging reduces directional risk but does not eliminate it. Each position still carries liquidation risk, funding fee costs, and margin requirements. If both positions move against you, losses can accumulate on both sides, especially during volatile conditions.

Are funding fees charged on both long and short hedged positions?Yes, funding fees apply independently to each position. If you hold both a long and a short on the same pair, you will pay or receive funding for each based on the prevailing rate at each funding interval (every 8 hours). This can result in paying fees on both sides if the market is in contango or backwardation.

Can I hedge spot positions with futures on Bybit?Yes. If you hold BTC in your spot wallet, you can open a short futures position on BTC/USDT Perpetual to hedge against price declines. This is an external hedge and not managed within the same interface, but it effectively offsets price risk. Ensure your futures position size matches your spot holdings for full coverage.