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📁 Strategy folder

📝 Summary

This strategy allows you to hedge a market making strategy by automatically opening short positions on dydx_perpetual or another perp exchange. Configs like hedge_ratio allow you to customize how much to hedge. Users are expected to run this strategy alongside another market making strategy.

This strategy was the winning submission in the dYdX hackathon.

đŸĻ Exchanges supported

perp exchanges

👷 Maintenance

🛠ī¸ Strategy configs

Config map

Parameter Type Default Prompt New? Prompt
maker_exchange string True Enter the spot connector to use for target market
maker_assets string True Enter a list of assets to hedge on taker market(comma separated, e.g. LTC,ETH)
taker_exchange string True Enter the derivative connector to use for taker market
taker_markets string True Enter a list of markets to execute on taker market for each asset(comma separated, e.g. LTC-USDT,ETH-USDT)
hedge_interval decimal 10 True how often do you want to check the hedge
hedge_ratio decimal 1 True Enter ratio of base asset to hedge, e.g 0.5 -> 0.5 BTC will be short for every 1 BTC bought on maker market
leverage decimal 10 True How much leverage do you want to use?
max_order_age float 100 True Max Order Age in seconds?
slippage decimal 0.01 True Enter max slippage in decimal, e.g 0.1 -> 10%
minimum_trade decimal 10 True Enter minimum trade size in hedge asset

📓 Description

Trading logic

Approximation only

The description below is a general approximation of this strategy. Please inspect the strategy code in Trading Logic above to understand exactly how it works.

By leastchaos - see original pull request


This strategy looks at the balance of the position on the spot(maker) exchange, and hedges it on the perpetual(taker) exchange.

Code Logic:

On every hedge_interval seconds,

  1. Look at balance of the for each asset defined under maker_asset on the maker markets
  2. Compares the balance of each asset on the maker markets with the positions on the taker markets
  3. If there is a difference more than the minimum trade, execute an order to balance the trade back to the target net position based on hedge ratio and maker asset balance. E.g if maker markets has 1BTC and taker market is -0.2 BTC (short position), if hedge ratio is defined as 0.5. The target net position will be 0.5 * 1BTC (from maker market) =0.5BTC. it will then execute a sell order of (0.5BTC-0.2BTC) = 0.3BTC on the taker market so that the net position of both market is 0.5BTC.

Strategy Configuration:

  • maker_exchange: Define the spot market
  • maker_asset: Define the list of markets to monitor on the maker exchange e.g LTC,BTC,ETH
  • taker_exchange: Define the perpetual market to hedge the spot market.
  • taker_markets: Define the list of markets to hedge on for each asset
  • e.g LTC-USD,BTC-USD,ETH-USD means LTC (from maker_asset first element) will be hedged on LTC-USD (taker_market first element) and so on, BTC -> BTC-USD, ETH->ETH-USD
  • hedge_interval: set time interval for each loop in seconds. (Can be <1 to get a faster hedge but you may encounter issue such as rate limit. use at your own risk)
  • hedge_ratio: set ratio of assets to be hedged on taker exchange. e.g 1 -> 100% of balance will be hedged. 0.5 -> 50% of balance will be hedged , 2-> 200% of balance will be hedged.
  • leverage: set the leverage to be used at the taker exchange
  • max_order_age: maximum time in seconds for limit order of hedge to be active before retry
  • slippage: set the initial buy/sell price. For buys, the buy price will be placed at min ask on taker market (1+slippage), for sells, the sell order price will be placed at max bid on taker market (1-slippage)
  • minimum_trade: set the minimum difference required between taker and maker balance in order to submit an order for hedging. This need to higher than or equal to the minimum trade size of the taker exchange

Sample Use Case Examples

  • Can also use with humming bot standard strategy and personal custom strategy or trading bot other than hummingbot to trade on spot exchange and define hedge ratio to hedge a percentage of trade or even opposite trade made on spot exchange on the perpetual exchange

Notes from CoinAlpha QA

  • perp exchanges: tested on dydx_perpetual and binance_perpetual
  • spot exchange: tested on ascend_ex and binance
  • On dydx_perpetual, hedge_interval <1 may cause issue such as unexpected clock tick error and rate limit
  • On binance_perpetual, hedge_interval has been tested to work with 0.01s

ℹī¸ More Resources

In the 3-part series below, Paulo will discuss Hedge in Market Making, including its basic concepts, risk management and hedging with DYDX Perpetuals.

Hedge in Market Making | Trader Strategies | Part 01

Hedge & Risk Management | Trader Strategies | Part 02

Hedge in Market Making using dYdX Perpetuals | Trader Strategies | Part 03

Check out Hummingbot Academy for more resources related to this strategy and others!