Hedging Guide: Spot Long + Perp Short (Delta-Neutral)

1) What hedging is (and isn’t)

A hedge reduces directional exposure, but it does not remove execution risk. You can still lose money from fees, slippage, basis changes, funding flips, or liquidation.

• •Hedge removes most price direction PnL
• •Hedge does NOT remove: liquidation risk, basis risk, and execution errors
• •Think of it as an execution strategy, not passive yield

2) The core setup (spot long + perp short)

Buy spot (or hold it) and short the perpetual futures of the same asset on the same venue or another venue. Keep the notional sizes close to equal to target delta ≈ 0.

• •Use isolated margin unless you intentionally want cross risk
• •Start small until your workflow is bulletproof
• •Prefer deep books and reliable venues for size

3) Sizing: notional vs collateral

Most mistakes come from confusing notional with collateral. Your liquidation risk depends on margin buffer, not on the headline APY.

• •Hedge notional: spot value ≈ perp short notional
• •Keep a liquidation buffer for wicks (don’t run max leverage)
• •Compute returns on capital used, not just notional

4) Net yield math (simple)

Net PnL ≈ funding received − trading fees − slippage ± basis move − borrow costs (if any). If funding flips negative, the same position starts paying.

• •Model fees on both legs (entry + exit)
• •Don’t ignore basis: perp premium/discount can move fast
• •Add a time-stop even for “delta-neutral” positions

5) Exit rules (what to do when it changes)

The best hedge setups have clear exits. Don’t “hope” a funding edge stays positive.

• •Exit if funding flips or trends toward negative for your short
• •Exit if basis widens against you beyond a threshold
• •Exit if liquidity deteriorates (thin book / wide spread)

6) Example: clean funding capture

You buy spot and short the perp on the same asset. Funding is positive for your short (you receive). Your job is to stay hedged and not get liquidated on a wick.

• •Enter both legs with minimal slippage (split size if needed)
• •Leave extra margin; don’t chase APY with leverage
• •Set alerts for funding flips and basis widening

7) Example: cash & carry basis trade

If futures trade at a premium to spot, you can buy spot and short the future to capture basis convergence (plus/minus funding). This is a hedge with an explicit convergence thesis.

• •Prefer expiries 1–3 months for clearer convergence (when available)
• •Plan the unwind: when basis normalizes or at time-stop
• •Avoid illiquid contracts where you can’t exit cleanly

Hedging checklist (copy/paste)

• •Spot and perp are the same underlying (symbol + contract spec checked)
• •Notional sizes match (delta target ≈ 0)
• •Isolated margin (or intentional cross) confirmed
• •Liquidation buffer sized for wicks + volatility
• •Fees modeled for both legs (entry/exit)
• •Funding schedule + current rate checked
• •Exit rules defined (funding flip / basis threshold / time-stop)

Useful references

• Revoke.cash

  Revoke approvals (for on-chain collateral flows)
  revoke.cash