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I am familiar with two positions to keep the hands when doing body weight squats, either in front of your body with arms straight forward or slightly bent or behind the neck.
Does this make a difference? Does it make any difference at all where my hands are at when squatting? Why not just let the arms hang down the sides?
Where your hands are changes your center of gravity. An easy way to demonstrate the difference is to do a bw squat with your hands in front of you, and then go close to a wall and do them with your hands behind your head.
Unless you have a good reason to be doing the squats in a particular way, just do whatever is easiest for you. It's a common thing in my gym to see weightlifters doing bw squats very close to the all so they can work on their flexibility and get used to keeping their weight on their heels. But these people have a specific need for doing these squats with their hands behind their heads.
The positioning of the arms during body weight squats affects your center of gravity. Therefore the only difference in arm positioning is the stabilization muscles involved. This difference however is very minimal and won't have any noticeable affect.
When I perform bodyweight squats, I prefer having my hands out in front of me. This is a personal preference since I find that when I'm using correct form, most of my weight is sitting on my heels and therefore I have the feeling of almost falling backwards.
This feeling is typically cancelled out when I have weight added with the traditional weighted squat style seen with barbells. Due to this, some people like to practice or warm up for weighted squats with the hands behind the head position so that the have the correct feel. The hands near the neck position (when holding the barbell) is an important roll in weighted squats since it tenses the muscles in your back such as your traps which creates a groove for the bar to sit in nicely and stops it from shifting around.
