How Can a Trader Attempt to Mitigate or Manage Basis Risk? ⎊ Path

How Can a Trader Attempt to Mitigate or Manage Basis Risk?

A trader can manage basis risk by actively monitoring the price difference and adjusting their hedge ratio. They can also choose derivatives contracts that are highly correlated with their underlying exposure, such as contracts with the shortest time to expiration.

Finally, using a different type of derivative, like a perpetual swap, might also alter the basis exposure.

Is Roll Risk Higher for Short-Dated or Long-Dated Contracts?

How Does a Change in Interest Rates Affect the Price of a Long-Dated Crypto Option?

Why Is the Interest Rate Effect (Rho) Negligible for Short-Dated Options?

Define “Cross-Hedging” and Explain Its Relation to Basis Risk.

How Can a Trader Attempt to Minimize Basis Risk When Hedging?

Why Is Basis Risk Unavoidable, Even with a Perfect Hedge Ratio?

What Is the Concept of “Rolling the Hedge” and How Does It Relate to Basis Risk?

How Does the Clearing House’s Margin Requirement Calculation Account for Basis Risk?

Glossar

Basis Risk

Exposure ⎊ The core of basis risk within cryptocurrency derivatives, particularly options, stems from the imperfect correlation between the price movements of the underlying asset and its derivative contract.