In Funding Farming, MagicTradeBot uses both Spot and Futures positions to create a hedged, delta-neutral setup. The difference in order sizes between Spot and Futures is intentional and critical for risk management and capital efficiency.
๐น Purpose of Different Sizes
Maintain Hedge Neutrality
Spot provides the underlying asset exposure
- Futures offsets the Spot position to minimize directional market risk
Futures size may be smaller to fine-tune the hedge, especially when leverage is applied
Control Leverage Exposure
Futures often use leverage, which magnifies gains and losses
Reducing the Futures order size relative to Spot keeps effective exposure balanced and avoids over-leveraging
Reduce Liquidation Risk
Oversized Futures positions can trigger margin calls or liquidation during price swings
- Smaller Futures size ensures the hedge protects capital without risking liquidation
๐น Typical Configuration
| Parameter | Example | Notes |
|---|---|---|
| Spot Order Size | $5,000 | Full base position in the underlying asset |
| Futures Order Size | $2,500 | Smaller than Spot; adjusted for leverage (e.g., 2x) |
The ratio between Spot and Futures depends on:
- Target hedge neutrality
- Leverage used on Futures
- Exchange margin requirements
๐น Practical Example
- BTC Spot: $5,000
- BTC Futures short: $2,500 with 2x leverage
Hedge is effective because:
- Spot absorbs directional price movement
- Futures captures funding fees
- Price swings are partially neutralized, while minimizing liquidation risk
โ Key Takeaways
- Spot and Futures sizes differ to maintain delta-neutral hedging
- Smaller Futures size reduces leverage exposure and lowers liquidation risk
- Balancing sizes ensures funding fees are captured safely without excessive directional exposure