Hedging currency risk



Assuming my goal is market participation, without (ETH) currency speculation, how can I hedge my ETH risk before stable coins are available?

For example this answer to a Bitcoin market question notes that:

Your position will be denominated in ETH, so you may want to create a second market that hedges BTC:ETH and open a position of equal size over there so that you remain ETH neutral.

How can I create a secondary market that hedges my EUR:ETH risk in my primary market of (for example) the average price in Euros per liter of gasoline in July, 2018?

Amadour Bernard

Posted 2017-09-05T12:42:07.643

Reputation: 223



You can do this exact operation with a Numerical Range question ("market"):

  1. Ask/find the following question: What will the EUR price of Ethereum be at 2018-07-31, 8:00 AM GMT?
  2. Short the question (AKA sell, or bet against it). Choose the current Ether/Euro price as the Limit price; and then choose the Quantity so that the cost estimate equals the amount you wish to hedge.

After doing this, you will have two positions:

  • your original bet about gasoline price (paid out in ETH at expiration)
  • a negative (short/sell) position of Ether over Euro, at the expiration date of the bet.

Therefore Ether's value is hedged out, and the only risk left is the one in your bet (in theory at least). So your two bets add up to the gasoline price expressed in Euro.

Check out the Augur docs on trading and shorting.

This hedge is the opposite of tue question's "buy" position; people buying it are doing the same as buying ETH on margin.


Posted 2017-09-05T12:42:07.643

Reputation: 186