Professional trading desks use hedge structures to reduce directional exposure. Basis hedge is one of those risk-management ideas. The name sounds technical — the principle is simple.
Think about planning a trip to Europe. Nobody knows if the exchange rate will go up or down. So you exchange your money ahead of time.
Exchange USD → EUR early
Already exchanged — no worries
Lock in now, not later
That's exactly what hedging is. You lock in certainty now, instead of worrying about what the future holds.
Buy (LONG) and sell (SHORT) the same asset at the same time. No matter which way the price moves, they cancel each other out.
📈 Spot position
📉 Futures position
Risk neutralized
In a simplified hedge, scenarios can offset each other:
Great question. Here's where the concept of Funding Fee comes in.
What is a Funding Fee?
In perpetual futures markets, a fee is exchanged between longs and shorts every 8 hours. This is called the Funding Fee.
When there are more longs → longs pay shorts
When there are more shorts → shorts pay longs
In a Basis Hedge, the SHORT position is usually the one receiving the Funding Fee.
The Funding Rate changes with market conditions. You won't always receive it. If the rate turns negative, it becomes a cost instead.
There's more: rebalancing can create spread opportunities
Piano continuously rebalances the long and short positions as the ratio drifts. When configured conditions are met — for example, when the basis narrows significantly — Piano can close positions according to the user's rules.
The hedge is not a return guarantee. It is a structure for managing exposure and responding to predefined spread conditions.
Use hedged structures to reduce directional exposure and monitor spread opportunities
Use futures and options to manage exposure, liquidity, and portfolio risk
Hedge inventory and price exposure while quoting both sides of a market
Basis Hedge (also known as Cash-and-Carry) is one of the oldest arbitrage strategies in financial markets.
The strategy itself is simple. But running it yourself means constant management.
The crypto market never sleeps. Position ratios drift even while you're sleeping.
Every time ratios drift, you need to calculate and adjust manually.
When prices swing hard, fear and greed kick in. You end up breaking your own hedge.
Piano is the software that automates all of this maintenance for you.
See how Piano automates your hedge position management.