Gold Perpetual Futures: A Tactical Hedge for Risk-Off Events
The turbulent year of gold has led investors to consider hedging their portfolios using perpetual futures. Unlike traditional futures, perpetuals have no fixed expiration date and can be margined in stablecoins such as USDT. This allows for long-term exposure without the need for physical delivery.
Gold perpetual futures are a derivative contract that tracks a gold price reference. They provide a way to hedge against broad risk-off events, equity market volatility, currency concerns, or geopolitical shocks. The key is to size the hedge according to the actual portfolio exposure at risk, not the maximum leverage offered by the exchange.
A $100,000 portfolio held mainly in crypto and equities can benefit from adding $10,000 of long gold perpetual exposure. However, the goal of hedging is not to make money on its own, but to reduce the portfolio outcomes you most want to avoid. Gold does not have a stable inverse correlation with stocks or crypto, so it's essential to understand the risk and not over-leverage.
The benefits of perpetual futures include flexible long/short exposure and the ability to keep positions open without worrying about expiry dates. However, there are also risks involved, such as funding costs, exchange-specific risks, tracking and underlying risks, and counterparty risk. It's crucial to estimate funding costs across the expected holding period before entering a position.