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How Can a Futures Contract Be Used to Hedge the Risk of Collateral Liquidation?

Shorting a futures contract on the collateral asset hedges against a price drop, offsetting the loss that would trigger liquidation.
Greeks.Live23.11.25

How Can a Futures Contract Be Used to Hedge the Risk of Collateral Liquidation?

An investor can take a short position on a futures contract for their collateral asset (e.g. short BTC futures if BTC is the collateral). If the price of BTC drops, causing a liquidation risk, the loss on the collateral is offset by the profit on the short futures position, effectively locking in the value of the collateral.

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