# Hedge Farming

Hedge farming is designed to **short volatility, hedge price direction risks, and maximize fee earnings** by balancing your position between two pooled assets. You borrow one asset, combine it with the other, and provide liquidity in Meteora DLMM to create a hedge farming position.

## Key Parameters of Hedge Farming (SOL/USDC example):

1. ### **Collateral & Leverage Ratio**
   1. Determines total position size.
   2. Higher leverage increases liquidation risk.
2. ### **Borrow Ratio**
   1. Specifies borrowed asset.
   2. Adjust to balance your position.
3. ### **Deposit Ratio**
   1. Defines SOL/USDC ratio in your final position.
   2. A balanced ratio better hedges price volatility.
4. ### **Price Range**
   1. Sets the LP position price range.
   2. A symmetric price range is recommended to hedge risk.

## Example

Assuming SOL price is $160:

* Deposit: 5 SOL (worth $800)
* Borrow: $800 USDC
* Price range: ±5% around current price

| Position ($USD)      | Price increase to 168 (+5%) | Price drop to 152 (-5%)  |
| -------------------- | --------------------------- | ------------------------ |
| Total position value | 800 + 5\*164 = 1620 USD     | 5 + 800/156 = 10.128 SOL |
| Total Loan           | 5 SOL = 840                 | 5 SOL                    |
| Net asset            | 780 USD                     | 5.128SOL = 780 USD       |