How To Trade Spot and Derivatives Simultaneously

How To Trade Spot & Derivatives Simultaneously: Advanced Portfolio Strategies

Once you've mastered spot trading and understand derivatives, the next level is combining them.

Trading spot and derivatives together unlocks strategies that neither can achieve alone. You can hedge your spot holdings, capture funding rates while maintaining exposure, execute basis trades for consistent returns, and dynamically adjust your portfolio risk without selling your core positions.

This is how professional crypto traders operate. They don't just "buy" or "go long"-they construct positions that express their views while managing risk precisely.

This guide teaches you how to combine spot and derivatives for sophisticated portfolio management. It's advanced material that assumes familiarity with both spot trading and derivatives basics.

Why Combine Spot and Derivatives

Each instrument has strengths and weaknesses:

Spot Strengths

• True asset ownership
• No funding costs
• No liquidation risk
• Simple tax treatment
• Can use in DeFi

Spot Weaknesses

• Can only profit from price increases
• Full capital deployment required
• No leverage
• Can't hedge without selling

Derivatives Strengths

• Can profit from both directions
• Leverage available
• Capital efficient
• Can hedge existing positions
• Sophisticated strategies possible

Derivatives Weaknesses

• Funding costs (perpetuals)
• Expiration (futures)
• Liquidation risk
• Counterparty risk
• Complexity

The Combination Advantage

By combining both, you can:

• Maintain spot ownership while hedging downside
• Earn yield on spot through basis trading
• Capture funding while staying market-neutral
• Amplify positions efficiently
• Express nuanced market views

This isn't about choosing one or the other-it's about using the right tool for each objective.

---

Understanding the Relationship Between Spot and Derivatives

Before combining instruments, understand how they relate:

Spot Price vs. Futures Price

Futures prices can be above or below spot (the "basis"):

• Contango: Futures > Spot (premium)

• Normal in bull markets

• Reflects cost of carry and bullish sentiment

• Creates opportunity for cash-and-carry trades

• Backwardation: Futures < Spot (discount)

• Normal in bear markets or during demand spikes

• Reflects delivery premium or bearish sentiment

• Creates different arbitrage opportunities

Spot Price vs. Perpetual Price

• Perpetuals should trade very close to spot due to the funding mechanism: Positive funding: Perpetual > Spot

• Longs pay shorts

• Market is net long

• Premium reflects bullish sentiment

• Negative funding: Perpetual < Spot

• Shorts pay longs

• Market is net short

• Discount reflects bearish sentiment

Why Basis Exists

The basis (difference between spot and derivatives) exists because:

• Time value of money
• Storage/custody costs
• Convenience yield
• Market sentiment
• Supply/demand imbalances in each market

This basis creates arbitrage opportunities for combined traders.

---

Strategy #1: Hedging Spot Holdings

The most common combined strategy: protecting spot holdings from downside without selling them.

The Scenario

You hold 10 ETH at an average cost of $2,800. Current price is $3,400. You're up $6,000 but worried about a pullback. You don't want to sell (tax implications, you believe long-term) but want protection.

The Hedge

• Action: Short 10 ETH worth of perpetual contracts ($34,000 notional)

Position summary:

• Spot: Long 10 ETH (own the underlying)
• Perpetual: Short 10 ETH (synthetic short exposure)
• Net exposure: 0 ETH (market neutral)

How It Protects You

Your P&L is locked at current level regardless of price movement.

Partial Hedging

Full hedging eliminates all directional exposure. Often you want partial protection:

50% hedge:

• Spot: Long 10 ETH
• Perpetual: Short 5 ETH
• Net exposure: Long 5 ETH

You still participate in moves, but at reduced exposure.

When to Hedge

Good times to hedge spot holdings:

• Before major events (FOMC, CPI, protocol upgrades)
• When reaching profit targets but don't want to sell
• During vacation/time away
• When technical signals suggest pullback
• When portfolio becomes over-concentrated

Hedge Costs

Hedging isn't free:

• Trading fees: Entry and exit
• Funding rates: If perpetual is in contango, you pay funding on short
• Spread costs: Difference between entry and exit prices
• Opportunity cost: Locked gains mean missing potential upside

Calculate hedge cost vs. potential loss before implementing.

---

Strategy #2: Cash-and-Carry (Basis Trade)

The cash-and-carry trade captures the difference between spot and futures prices for a risk-free (ideally) yield.

The Concept

When futures trade at a premium to spot, you can:

1. Buy spot
2. Short futures
3. Hold until futures expiry
4. Profit from the basis converging to zero

Example Trade

Current prices:

• BTC Spot: $95,000
• BTC March Futures (90 days out): $98,000
• Basis: $3,000 (3.16%)

Trade setup:

• Buy 1 BTC spot at $95,000

• Short 1 BTC March futures at $98,000

• Hold until March expiry

• At expiry: Futures settle to spot price. If spot is $100,000:

• Spot position: +$5,000 gain

• Futures position: -$2,000 loss (shorted at $98k, settled at $100k)

• Net: +$3,000 (the original basis)

If spot is $85,000:

• Spot position: -$10,000 loss
• Futures position: +$13,000 gain (shorted at $98k, settled at $85k)
• Net: +$3,000 (the original basis)

The outcome is the same regardless of price direction. You lock in the basis as profit.

Annualized Yield

$3,000 on $95,000 over 90 days = 3.16%

Annualized: 3.16% × (365/90) = ~12.8% APY

This is essentially risk-free yield (excluding exchange/counterparty risk).

With Perpetuals

You can do similar trades with perpetuals, capturing funding instead of basis:

When funding is positive (longs pay shorts):

1. Buy spot
2. Short perpetual
3. Collect funding payments
4. Net exposure is zero, but you earn funding

This is ongoing rather than one-time, and yield varies with funding rate.

---

Strategy #3: Funding Rate Capture

A specific application of the basis trade focused on perpetual funding rates.

How It Works

When funding is positive (longs pay):

1. Buy 1 BTC spot
2. Short 1 BTC perpetual
3. Net BTC exposure: 0
4. Receive funding payments (typically every 8 hours)

When funding is negative (shorts pay):

1. Short or don't hold spot
2. Long perpetual
3. Receive funding (but you have directional exposure unless you short elsewhere)

Yield Potential

At 0.03% funding per 8 hours:

• Daily yield: 0.09%
• Monthly yield: ~2.7%
• Annual yield: ~33%

Actual yields vary dramatically. During bull runs, positive funding can exceed 0.1% per 8 hours. During bear markets, funding is often negative or near zero.

Practical Implementation

Position sizing:

• Spot position: $50,000 worth of BTC
• Perpetual short: $50,000 notional
• Margin for perpetual: ~$5,000 at 10x leverage

Capital deployed: $55,000 Expected yield (at 0.03% funding): ~$45/day = ~$1,350/month

Risks

• Funding rate changes: Funding can flip negative. Your "yield" becomes a cost. Monitor and be ready to unwind.

• Liquidation risk: Your perpetual short needs margin. If price spikes dramatically before you can adjust, liquidation is possible (even though you have spot to cover, it's not automatic).

• Execution risk: You need to enter and exit both legs. Mistimed execution can create temporary directional exposure.

• Exchange risk: Your spot and perpetual may be on the same exchange. Exchange failure affects both.

---

Strategy #4: Delta-Neutral Positioning

Delta-neutral strategies aim for zero directional exposure while profiting from other factors.

What Is Delta

Delta measures how much a position's value changes when the underlying price changes.

• Long 1 BTC: Delta = +1 (price up $1, position up $1)
• Short 1 BTC perpetual: Delta = -1 (price up $1, position down $1)
• Combined: Delta = 0 (market neutral)

Delta-Neutral Applications

1. Volatility Capture

Enter delta-neutral, then rebalance as price moves. You profit from the rebalancing, not direction.

Setup:

• Long 1 BTC spot
• Short 1 BTC perpetual
• Delta = 0

If BTC rises 5%:

• Spot: +5%
• Perpetual: -5%
• Net: 0

But your short perpetual is now smaller relative to your spot (because notional changed). Rebalance by shorting more perpetual.

If BTC then falls 5%:

• Spot: -5%
• Perpetual: +5%
• Net: 0

But now your short is larger. Rebalance by covering some.

The rebalancing in volatile markets can be profitable (similar to how market makers operate).

2. Options + Spot Delta Hedging

• More advanced: Use options for convexity while hedging delta with spot.

• Long call options (positive delta)

• Short spot to neutralize delta

• Profit if volatility increases regardless of direction

This is complex and beyond basic combined trading, but illustrates the concept.

Maintaining Delta Neutral

Delta changes as price moves. Regular rebalancing is required:

• Time-based: Rebalance every X hours
• Threshold-based: Rebalance when delta exceeds ±0.1
• Continuous: Automated rebalancing (requires infrastructure)

---

Strategy #5: Enhanced Spot Exposure

Use derivatives to increase exposure beyond your spot holdings.

The Scenario

You hold 5 ETH ($17,000 value) and want 7 ETH exposure but don't have capital to buy more spot.

The Solution

• Option A: Long perpetual
• Hold 5 ETH spot
• Long 2 ETH worth of perpetual
• Total exposure: 7 ETH

Trade-offs:

• Pay funding if positive

• Liquidation risk on perpetual portion

• No ownership of additional 2 ETH

• Option B: Margin on spot

• Use 5 ETH as collateral

• Borrow USDC

• Buy more spot with borrowed USDC

• Total: More spot, but with debt

Trade-offs:

• Interest on borrowed funds
• Liquidation risk if collateral value drops
• Actually own the additional ETH

Leveraged Spot Strategies

2x Long:

• 1x spot (own it)
• 1x perpetual (synthetic exposure)
• Total: 2x exposure

Comparison to 2x margin:

• 2x margin: Borrow to buy 2x spot, owe debt
• Spot + perpetual: Own 1x spot, have 1x synthetic
• Different risk profiles, similar directional exposure

When to Use

Enhanced exposure makes sense when:

• High conviction on direction
• Want to maintain spot ownership for other benefits
• Comfortable managing derivatives risk
• Have capital for perpetual margin

Never use enhanced exposure without clear risk management. You're amplifying potential losses.

---

Managing a Combined Portfolio

Running combined positions requires systematic management.

Position Tracking

Track separately:

• Spot positions (asset, quantity, entry price)
• Derivative positions (type, notional, entry, margin)
• Combined metrics (net delta, total exposure, margin utilization)

Daily Monitoring

Check daily:

• Net delta: Are you as directional as intended?
• Funding rates: Are your costs/yields as expected?
• Margin utilization: Any liquidation risk?
• Basis: Has basis changed significantly?

Rebalancing Triggers

Decide when to rebalance:

• Delta drift: Rebalance when net delta exceeds X
• Time-based: Weekly rebalancing regardless
• Event-based: Rebalance around major events

Record Keeping

Track all legs of combined trades:

• Entry dates and prices for each leg
• Ongoing funding received/paid
• Rebalancing actions
• Exit dates and prices
• Total P&L (across all legs)

---

Risk Considerations

Combined trading introduces risks beyond simple spot:

Liquidation Risk

Your derivative legs can be liquidated even if you have offsetting spot.

• Example: You're long 1 BTC spot (on cold storage) and short 1 BTC perpetual (on exchange). BTC price spikes 40% before you can act. Your perpetual short might be liquidated even though your net position is flat.

Mitigation:

• Adequate margin on derivatives
• Alerts for significant moves
• Don't over-leverage derivative legs

Execution Risk

Opening and closing combined positions requires multiple trades. Time gaps between legs create temporary risk.

• Example: You want to close your basis trade. You close the futures short first. Before you can sell spot, BTC drops 5%. You're now just long spot in a falling market.

Mitigation:

• Close smaller/riskier leg first
• Use simultaneous order entry when possible
• Accept some temporary exposure

Correlation Breakdown

Combined strategies assume instruments move together. In extreme conditions, they might not.

• Example: During the FTX collapse, FTT spot on some exchanges diverged significantly from FTT perpetuals. "Hedged" positions weren't hedged.

Mitigation:

• Use major assets with deep liquidity
• Monitor correlation during stress
• Reduce size around major events

Complexity Risk

More moving parts means more ways to make mistakes.

• Example: You meant to short 0.5 BTC perpetual to partial hedge but accidentally shorted 5 BTC. You're now massively net short.

Mitigation:

• Double-check orders
• Use position sizing tools
• Start small with new strategies

Exchange/Counterparty Risk

If your spot and derivatives are on the same exchange, exchange failure affects both. You can't use spot to close derivatives.

Mitigation:

• Split between exchanges when practical
• Self-custody spot holdings
• Monitor exchange health

---

Common Mistakes to Avoid

Mistake 1: Mismatched Sizing

Your spot position is 1 BTC but your hedge is 0.8 BTC. You're not hedged-you're 0.2 BTC long.

• Fix: Calculate exact position sizes. Match notional values, not "approximately."

Mistake 2: Ignoring Funding Costs

That "hedge" is costing you 0.05% every 8 hours. Over a month, that's 4.5% drag.

• Fix: Factor all costs into strategy evaluation. Know your break-even.

Mistake 3: No Liquidation Buffer

Your perpetual margin is exactly at maintenance margin. One bad wick and you're liquidated.

• Fix: Maintain substantial margin buffer. Set alerts well before liquidation.

Mistake 4: Forgetting Expiry

Your futures-based trade has a specific expiration. You forgot and let it settle unexpectedly.

• Fix: Calendar all expirations. Set reminders for rolling or closing.

Mistake 5: Overcomplicating

You have 8 legs across 4 instruments on 3 exchanges. You can't track what your actual exposure is.

• Fix: Start simple. Add complexity only when comfortable. If you can't explain your position in one sentence, simplify.

Mistake 6: Not Testing Small

You saw a basis trading opportunity and went full size. Then you realized you didn't understand settlement mechanics.

• Fix: Paper trade or tiny size first. Scale up only when comfortable.

---

FAQs About Combined Trading

How much capital do I need for combined strategies?

More than for spot alone. Basis trades and hedging require capital for both legs plus margin. Start with at least $10,000-$20,000 for meaningful combined strategies. Less than that and costs eat too much of returns.

Are combined strategies suitable for beginners?

No. Master spot trading first. Understand derivatives individually. Combined trading is intermediate to advanced material.

What's the best combined strategy to start with?

Simple hedging. You already have spot holdings, you add a simple hedge. One additional position, one additional risk to manage.

Can I do combined trading on DeFi?

Yes, with limitations. Use DEX spot and on-chain perpetuals (dYdX, GMX, Hyperliquid). Execution is more manual and potentially slower. Smart contract risk applies.

How do I track P&L on combined positions?

Track all legs together as one trade. Sum all realized and unrealized P&L, all costs, all funding. The strategy P&L is the total, not individual leg P&L.

What if funding rates flip while I'm in a funding capture trade?

Monitor constantly. If funding flips negative (you're paying instead of receiving), you need to decide: hold through it, adjust, or exit. No combined strategy is "set and forget."

---

Combining Instruments, Multiplying Opportunity

Trading spot and derivatives simultaneously is how professionals manage crypto portfolios. It's not about gambling on direction-it's about precisely expressing market views while managing risk.

Start with simple hedging. Graduate to basis trades. Eventually explore more complex delta-neutral strategies. Each step builds on the last.

The goal isn't complexity for its own sake. It's having the right tools to achieve your objectives-whether that's protecting gains, generating yield, or expressing sophisticated views.

Master combined trading, and you'll trade like a professional.

---

Track Combined Positions with Thrive

Combined spot and derivatives trading requires sophisticated tracking. Thrive handles it:

• Multi-leg position tracking - Log spot, futures, and perpetual positions as combined strategies
• Net exposure calculation - See your actual delta across all positions
• Funding rate monitoring - Track funding received and paid on perpetual legs
• Combined P&L - Aggregate P&L across all legs of a strategy
• Strategy templates - Pre-built tracking for hedges, basis trades, and delta-neutral positions

Stop using spreadsheets for complex positions. Start using purpose-built tools.

Manage complexity. Track everything.

→ Track Combined Strategies with Thrive