Sunday, July 3, 2022

How To Short Sell Crypto

What Is Margin Trading

How to Short Sell Cryptocurrency in a Crypto Bull Market

If youre going to short Bitcoin, you need a basic knowledge of derivatives. Derivatives, including margin and leverage trading, are complex financial instruments being offered on a growing number of crypto trading platforms.

To put it simply, margin trading is the act of taking on debt to invest in cryptocurrencies. Generally, the cryptocurrencies purchased with this debt would become collateral for the loan in question. While risky, experienced traders often use margin trading to maximize their starting capital, and potentially their profits.

Are There Any Risks Involved In Shorting Bitcoin

There are several risks involved in shorting bitcoin. This is because you are placing a bet that the price of BTC will drop sometime in the future. Trends may not go as planned, and you may suffer a loss.

There may also be a price spike that may cause liquidation rollover fees might kill the rate of your probability if the price remains stable.

There are also risks involved in the leverage rates you use, as a high leverage rate may make your liquidation price rate close to the initial price you began with.

Futures Trading Of Bitcoin

You can also find ways to short sell Bitcoin in the futures market. Heres how it works: a future is basically a contract. You, as the buyer, agree to buy Bitcoin at a future date at a certain fixed price. In this type of trading, youre predictinghopingthat the price of Bitcoin will go up. That way, when your contract expires you can buy Bitcoin below the market price.

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The Regulatory Status For Bitcoin Is Still Unclear

Though it claims to have global coverage, Bitcoin’s regulatory status across geographies is still unclear. Several leading platforms for Bitcoin trading, such as Deribit, FTX, and OKEx, are not available to American investors. The absence of regulatory oversight means that exchanges have been able to get away with offerings that would not be allowed if there were proper oversight. For example, Binance offered 125% leverage for Bitcoin futures trading until recently. The lack of clarity about regulatory status means that legal recourse for customers of these exchanges is limited.

Introduction To Short Selling Bitcoin

How To Short Crypto On Etoro

Before we get into detail, you might need a brief introduction. Weve got you covered. Here are all the terms you need to know before getting started.

Lets start with trading. Sounds basic, right? However, it is important to understand the core of this practice. Trading means buying and selling assets with the aim of making a profit. Institutional trading looks at buying and selling stock, shares and currencies. Trading cryptocurrencies means buying and selling digital assets.

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How Do I Get Started

It is not recommended for beginners to engage in shorting. As a last resort, they may try to short calm coins with a more predictable rate. The scheme of shortening for beginners looks like this:

  • Choose the coin known in the market .
  • Analyze how the value of the coin has changed, what factors have been associated with periods of deep correction, and the sharp decline in the price .
  • Wait for the price to drop caused by the factors that worked before.
  • Using margin trading, buy the cryptocurrency before its price goes down .
  • Sell coins after a sharp price jump.

But even better for beginners to stuff your hand on short+long. With the right approach, this strategy also makes a profit, and also helps you to understand the functioning of the market and the formation of the price of the cryptocurrency. When this level is taken, you can move on to shorting.

How To Start Shorting Cryptos

If youre interested in shorting cryptos, follow our step-by-step guide:

  • Find a trend The cryptocurrency market is extremely volatile and can be influenced by any number of factors. Developments in news, politics or even celebrity culture can all influence the value of popular cryptocurrencies. Make sure you carry out careful analysis of the asset you want to start shorting, be it Bitcoin, Ethereum, Ripple or another.
  • Open a margin trading account Most of the top crypto brokers offer short selling capabilities with leverage, including Binance, Coinbase, eToro and Kraken. However, regardless of whether youre from Canada, India, Europe or elsewhere, its important to adhere to regulations in your country. For example, investors in the UK can no longer trade derivatives on cryptocurrencies.
  • Minimise your risk The digital currency market is turbulent and losses on short positions can grow exponentially. Make use of stop losses and take profit levels in your trading platform to limit your exposure. Many brokers also offer useful crypto shorting calculators.
  • Open your position Once you have determined your entry and exit points, go short and sell the cryptocurrency that youre interested in.
  • Recommended Reading: How To Swing Trade Crypto

    How To Long Cryptocurrencies

    Taking a long line on cryptocurrency is the simplest investment strategy. In this scenario, you invest in the currency because its worth can increase over time.

    It entails trading coins, which ensures that you own the money and that the income is calculated by the market value of your cryptocurrencies. This is the traditional low-buy and high-selling approach to technology innovation.

    Binary Options Trading Of Bitcoin

    How to Short Crypto on Binance (Step By Step)

    Another way you can figure out how to short sell Bitcoin is with options trading, which involves put and call options.

    With a put option contract, you have the right to sell a specified amount of Bitcoin, which you set, at a certain price at a certain time. This is called the strike price. The put option gains value as Bitcoin loses value compared to this strike price.

    Importantly, you are not obligated to sell the option if you dont want to. A call option contract gives you the right to buy shares in the same way. With this contract, you have the option to buy a certain amount of Bitcoin at a specific price until a certain datethats the expiration date.

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    How Does Short Selling Work

    The best way to explain theory is by using an example. So, lets have a look at one.

    Imagine this: you believe the price of bitcoin will decrease in the next few days or weeks. So, you borrow 3 BTC at, say, 10,000 per coin. That means you have spent 30,000. Now, you sell these coins. After a little while, the price of bitcoin changes. Lets say it decreases to 8000. You have to pay back the 3 bitcoin you initially borrowed. So, you purchase them at the current market price and pay 24,000 for 3 bitcoin. This means that you have made a profit of 6,000.

    Are you looking for more practical examples? Have a look at our extensive guide on how to short bitcoin!

    Conclusion Should You Short Bitcoin

    Shorting Bitcoin is a great but risky way to make money. Through the act of borrowing Bitcoins, selling them when the price is high, and then buying them back when the price is low, you can earn money even when markets are bleeding.

    Usually shorting isnt recommended for traders who are just starting out because of the high risk it involves. If you do decide to short Bitcoin make sure you only invest money you can afford to lose. Also, make sure to stay up to date with current related events so you can anticipate any change in the price direction.

    Have you had any experience with short selling Bitcoin? If so, Id love to hear about it in the comment section below.

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    Betting And Prediction Markets

    Prediction Markets Business research is another way to consider bitcoin shortcuts. They have not been in the blockchain world for a long time, but they can be an advantage for currencies, including bitcoin. Such markets allow participants to create an event based on the results. So, you might forecast that Bitcoin will decline by a certain percentage of margin, and if anyone takes you up on the bet, you will be able to profit. Predictable is an indicator of a bitcoin prediction market. There are several popular prediction markets online today: Bet Moose, Weathbet, Fairlay, etc.

    Short Selling Bitcoin Strategies

    How to Short Crypto on Binance

    When shorting bitcoin, traders can use many types of analytical strategies. These strategies vary by type of analysis, time frame and risk appetite. However, a key decision traders make when they are starting out is if they are going to focus on technical or fundamental analysis strategies. Some traders utilise a blend of both, especially if both strategies suggest similar information.

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    Shorting On Digital Asset Exchanges

    Perhaps the simplest way to short cryptoassets is on digital asset exchanges that enable . Exchanges such as BitMEX, Bitfinex, and Poloniex allow traders to short cryptocurrencies on margin.

    To short sell on a digital asset exchange, you need to borrow a cryptoasset from margin lenders to sell the asset that you do not own and then, buy the asset back once your target price has been met so that you can sell it back to the lender. The exchange handles the backend of this process and you will be charged a borrowing fee for each day that you are shorting the asset.

    Your profit will be the difference between the price you short sold at and the price at which you have bought the asset back at minus the margin lending fee, which differs from platform to platform.

    If you are using leverage, this profit or loss can be amplified by the leverage ratio you choose.

    The Risks Of Shorting Bitcoin

    I should warn you that short-selling any asset is a high-risk venture. Normally, when you invest in an asset your losses are limited to the amount of money you have invested in that asset.

    For example, if you invest $10,000 dollars in a stock, and that stock suddenly collapses and becomes worthless, your losses will be limited to the $10,000 dollars you invested.

    When short selling, however, your losses could extend far beyond your initial investment, something that is very important to consider, especially with Bitcoin. The easiest way to explain this is to use an example:

    Lets say you short-sold $100 dollars worth of Bitcoin back when prices were only $10 dollars per coin. That means you short-sold 10 coins. Lets assume that you have yet to repurchase the coins, meaning that you still have to pay the owner back with 10 Bitcoins.

    Now lets assume that all of a sudden prices went up to $4000, which can definitely happen with Bitcoin. This means that the 10 Bitcoins you need to pay back will now cost you $40,000!

    As you can see, short-selling any asset can be very risky. If you want to short sell Bitcoins or anything else, you need to be very careful.

    Only invest if you are very confident that prices will drop, and if you have money to cover your losses if investments rise. Make sure you watch prices closely and cut your losses if prices start to rise too quickly.

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    Going Short In Prediction Markets

    If you are comfortable interacting with the Ethereum blockchain and dealing with smart contracts, you could also express your short view on a specific cryptoasset on prediction platforms.

    Decentralized, peer-to-peer prediction markets, such as Ethereum-based , enable individuals to bet on the outcome of certain events, such as asset prices, elections, the weather or anything else that users can come up with, using cryptocurrency as a stake.

    If your prediction turns out to be correct, you win and are rewarded in cryptocurrency.

    Prediction markets offer a wide range of possibilities to bet on the price of different cryptoassets, so they can also be used to express short views.

    How Do I Safely Short

    How to Do Short Selling the Right Way? | Crypto Trading Strategies | Token Metrics Roundtable

    When it comes to shorting cryptocurrency, the current risks that are involved with short-selling stocks are magnified. Cryptocurrency markets are extremely volatile by nature, meaning theyre prone to shift more drastically and more quickly.

    Because of this, theyre also harder to predict.

    As a result of that, theres no real safe way to short-sell cryptocurrency. But there are ways to minimize the risks involved. Heres how:

    Wait for a downward turn

    Cryptocurrencies like Bitcoin are extremely volatile, and their value can depreciate as quickly as they appreciate.

    Because of this unpredictability, it can help to wait for a downward turn before deciding to short-sell. This can give you a clearer indication of patterns and trends.

    Be skeptical

    Sentimentality can be a big pitfall for any investor, and this includes when trading with Bitcoin. For example, you may have been one of the initial investors in Bitcoin, before it became so popular and widely used. This could have its drawbacks and may mean losing your initial investments and/or your shares.

    Keeping a clear head, and an objective view of the market and its fluctuations will help you to make better-informed decisions when trying to short any kind of cryptocurrency.

    Stay informed

    Any kind of investment requires you to be highly informed about a market and everything that surrounds it. That includes the industry it sits in, social implications, economical factors, and consumer trends.

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    How To Short Cryptocurrency: The 4 Methods

    Before we get started, I want to clarify that this is not financial advice, and this post aims to help you understand the concept of shorting crypto. It carries risk, with investors potentially losing an infinite amount of money if it goes wrong. It is essential that you understand the risks involved and be able to manage those risks appropriately.

    Now lets dive into the meaning of short trading with crypto:

    How To Short Crypto So You Profit During Crashes And Retracements

    Volatility is an intrinsic characteristic of the cryptocurrency market. A currency thats on a hike today might experience a dip tomorrow that you couldnt have imagined. In fact, many coins rates constantly change throughout the day. Crypto volatility coupled with regulatory actions can lead to fear driven flash crashes and slight retracements after big rallies. To avoid experiencing loss when this happens, you can leverage a concept called short selling that allows you to make money when prices are falling even without owning crypto. In this article, well explain crypto shorting and its associated risks.

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    Shorting Via A Bitcoin Exchange

    Bitcoin exchanges geared towards crypto traders offer short selling options, and some allow for leveraged shorting too. Leveraged shorting means you can borrow more money from the exchange than you actually own there, in order to buy the Bitcoins you want to short.

    For example, say you have $1,000 on the exchange and you leverage on a 1:3 ratio you can now short sell up to $3,000 .

    Leveraging is considered very risky since if things dont go as you intended, the exchange will close your trade sooner than you expected . In other words, leveraging magnifies both gains and losses.

    Major exchanges that allow you to short sell Bitcoin include:

    How Does Bitcoin Short Selling Work

    How To Short Crypto On Etoro

    The best way to explain short selling Bitcoin is using an example. If a person is confident the BTC price will decline over the coming days or weeks, they can borrow 5 BTC at $35,000 per coin and sell it on the open market for $175,000 using a cryptocurrency leveraged trading platform.

    If the price of Bitcoin decreases to $28,000, the person can decide to buy back the 5 BTC for $140,000. The 5 BTC that was borrowed for $175,000 is paid back to the exchange and a net profit of $30,000 is realized . However, if the person sold the 5 BTC when the price of Bitcoin increased to $38,000 per coin, the person would have to pay back $190,000 to the exchange and make a net loss of $15,000 .

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    Bitcoin As An Asset Is Risky

    Price is just one of several risks you will have to evaluate while shorting the cryptocurrency. As compared to other, more established assets, Bitcoin is nascent. It has been around for only 13 years. Therefore, there isn’t sufficient data or information for investors to make an educated decision about its workings or feasibility as an asset. For example, several issues related to Bitcoin forks are still unresolved. While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, new platforms started off being “clunky” and are susceptible to hacks.

    Where To Short Crypto

    • OKEx
    • Bitfinex.

    To use these platforms, create an account, then fund it with some collateral to begin trading.

    To trade crypto futures on traditional stock markets, you will need to interact with a stockbroker. Very few brokers allow small-scale traders to do this. These include:

    • TD Ameritrade
    • eToro.

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    A Brief Theory Of Short Trading

    When using short positions in trading, one simple rule should be remembered: even if the value of the cryptocurrency has fallen by half, you will not earn more than 50%, and if the price rises by a factor of two, the losses will be 100%. Thus, you need to be extremely cautious in such a lowering game, because the cryptocurrency market has surprised even experienced traders with the rapidity of changing trends.

    What Does Shorting In Crypto Mean

    Bitmex Beginner Guide – How to Short Sell Crypto Currencies?

    Shorting crypto means borrowing an amount of digital currency from a broker and selling it at market value. Once the value of the crypto has fallen, the trader then buys it and returns the borrowed amount, plus any interest, to the broker. The profit is the difference between the cost of buying and selling the crypto.

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