A beginner’s guide on how to short Bitcoin and other cryptocurrencies
What is shorting cryptocurrency, and how does it work?
Short-selling is usually combined with stock trading. But traders also have the chance to short bitcoin and other cryptocurrencies, especially considering the volatility of many crypto assets. The volatility provides traders the probability to acquire significant income along with support shorting.
Shorting, or short realization, usually belongs to the investment practice that involves taking over significant securities and realizing them in the belief that the cost will continue to decline.
If you short a cryptocurrency, in this case, anticipate a decrease in its price and, according to the essence, make a bet in such a case, that it will continue to decline, and in the future, it will be possible to buy it according to the lowest cost.
The amount in the reduction of the price of the asset can oppose the concept of extracting income in the presence of an increase in its price, but shorting allows acquiring income also in the presence of a decrease in value.
But there is also a significant possibility of losses, for this reason, it is important to realize the dangers, in the first place, rather than take to shorting.
There are several methods to short cryptocurrency, and traders should find out about shorting or short-selling bitcoin and other cryptocurrencies, especially if they believe that certain crypto-assets will collapse.
Shorting can also be useful to hedge possible costs in your cryptocurrency portfolio.
In classical bazaars, traders take promotions at their broker according to a specific value if they seek to short. Then the depositor realizes these lent promotions in a disclosed trade, expecting that the value will fall.
As soon as this happens, the depositor can buy promo shares according to the lowest value and return them to the broker, covering the difference in value as income.
In the presence of shorting cryptocurrency, the procedure is slightly different but is guided by a similar concept. Instead, traders often use derivatives, such as futures contracts or CFDs, to short cryptocurrency to accept real units of cryptocurrency at the broker.
These derivatives allow traders to trade in the movement of the value of a particular cryptocurrency without actually owning it and can be used in the same way as shorting promotions.
But short – this is the most modern trading policy, causing a specific skill. The investor must be well-versed in trading directions, value movement, and risk management, first of all, before taking up short-selling.
Is shorting cryptocurrencies safe?
Cryptocurrency shorting is combined with a large notch. It contains selling together with the use of plastic leverage, as well as selling with futures and options, which are considered to be quite difficult and confusing trading strategies.
In this case, the period as well as large operations are combined with speculation in the issue of increasing the value of the asset, short operations call for the attraction of loan money.
In case the depositor does not express prudence in any way, he has a chance to have problems together with the closing of obligations, combined with his investments.
And in case the direction of the trade changes in no way in their favor, the market that manages their investments can cash out their opinion to return the funds, keeping the persons together with a smaller amount than the one they started with.
In addition, the cryptocurrency exchange is very volatile and rapidly changing, which makes it difficult to model the movement of value.
This means that there is a large possibility of costs present shorting cryptocurrencies, and traders need to be wary of this, as they will get involved in no way in their problem and have all the chances to lose a significant amount of money needed.
According to this circumstance, certain crypto exchanges, for example, Binance, force crypto traders to analyze, first of all, before starting to sell derivatives.
This is done to make sure what they mean, and which difficult economic foodstuffs they apply. Of course, the solutions to these studies can be found on the Internet, and therefore, every aspiring person can start short trading, if very willing.
However such auxiliary activities have all chances to deter inexperienced traders from the role of short trading in the absence of proper understanding of the risks associated with it.
The selection of a faithful and influential exchange or broker presence in non-long cryptocurrency trading is also important, as the exchange is full of scammers and liars.
It is more correct to generally perform a painstaking study of each platform, first of all, rather than use it for shorting or another trading fuller. In full, traders must proceed to short cryptocurrency with caution and be sure to research the dangers and strategies before trying to short.
How to short Bitcoin and other cryptocurrencies
There are several ways to short cryptocurrencies, such as buying options or futures contracts, using CFDs, or trading on margin. Let’s look at each method in more detail.
Using futures or options
Acquisition of futures or options contracts allows traders to purchase or realize a specific asset by a specific date at a specific cost.
Futures call for the execution of pre-negotiated transactions on a certain date, in such a case the period as well as options allow the trader to choose whether to carry out the operation or not.
As previously mentioned, the use of futures or options requires an excellent understanding of cryptocurrency derivatives, trading directions, and risk management strategies. Just like other assets, cryptocurrencies also have a futures exchange.
For example, bitcoin futures allow a trader to buy or sell BTC on a future date. Similarly, wishing to sell a futures contract, the investor can fix the value and expect to buy assets according to the lowest value in the future, acquiring income from the decrease in its price.
It should be emphasized that this policy of shorting can in no way pay for itself, in case the price of bitcoin increases, but the investor can almost all win, in case the exchange is promoted.
Together with the emergence of exchanges that allow traders to bet against crypto assets with the help of short trades, it has become much easier to generate income from a bearish trade.
Options, together with a different edge, besides enable traders to make short bets in cryptocurrency.
Binary options (call and put options) denote an opportunity to purchase or realize a specific asset in the future according to a certain value.
The right “put”, in particular, gives the holder an advantage in that someone can realize his monetary unit according to the current value, even if in the future its price will fall.
Using CFDs
CFD is a contract according to which a difference in the price of an asset is paid from the opening stage of the contract up to the closing stage. CFDs are often used for short-term trading and allow traders to trade in this will increase or decrease the price of the asset, in fact, without possessing it in any way.
Similar to futures and options, shorting cryptocurrencies with the support of CFDs allows traders to acquire a possible income from a price decrease.
But it is important to emphasize that CFDs often have large commissions and probably have all chances to give large losses, in case the exchange turns out in no way in favor of the investor.
If the value of the asset drops, the investor receives funds. In case it does not – someone loses funds. When applying CFD traders do not need to hold or save cryptocurrency, as calculations are performed in fiat.
In addition, compared to futures, which have predetermined settlement dates, CFDs have the most elastic settlement dates.
CFDs also provide a plastic plot, allowing traders to control a significant transaction together with the support of a small amount of funds.
For example, the presence of the balance of plastic leverage 2:1 depositor can disclose a brief transaction according to a bitcoin price of one hundred dollars, investing a total of fifty dollars.
Nowadays CFDs are not regulated in any way and for this reason, they are prohibited in the United States to be used in controlled bazaars.
But, since cryptocurrencies are considered to be an uncontrolled trade at a significant level, crypto traders without exception also have every chance to use them.
Margin trading
The only other method of shorting cryptocurrencies is margin trading, which is often done through a margin trading platform, such as a crypto broker or an exchange.
Traders essentially seize funds from the broker to use them in the presence of the transaction, which allows them to control the largest transaction.
For example, if an investor has $200 in his account, but someone acquires a bitcoin of $1200, then the remaining $1000 will become marginal or taken from the exchange or broker.
In the presence of shorting, the investor lends assets to a broker to trade large aggregates and acquire significant income.
Margin traders usually acquire cryptocurrency in loan funds, realize it as soon as it increases in value, and then pocket the difference and give the loan together with interest.
Prediction markets
Forecast bazaars – this is still the only method to short Bitcoin and other cryptocurrencies, which is performed by the pond placement line as a result of events.
The investor can predict that Ether, for example, will fall in a particular share. If someone buys his bet, he will gain income if his prediction comes true.
Such prediction bazaars, as well as Gnosis, Argur, and Polymarket, give traders the opportunity to short cryptocurrencies, including without possessing almost any assets, which provides the possibility, along with those who do not want to invest the main capital in the acquisition of cryptocurrencies, all without exception also take part in the trade.
But shorting cryptocurrencies through the bazaars of forecasts is a high-risk strategy, which as well as involves anticipation of future events, and the possibility of costs is limitless.
In addition, it requires thinking and researching trading directions, as well as an in-depth understanding of how prediction bazaars function.
What are the rewards and risks of shorting crypto?
For those who apply margin, this can be the reason for huge profits, as they are essentially trading in loan resources. And for those who exactly apply the bazaars of forecasts, their possible income is limitless, if only their forecasts are accurate.
In addition, shorting cryptocurrencies can help avoid possible costs in the portfolio and guarantee a certain balance in the investment strategy. But in no way need to discount and encourage that is possible to acquire from shorting cryptocurrencies.
If a trader can safely predict the direction of movement of the value of cryptocurrency, someone can acquire a significant income and probably guarantee himself a more significant profit than if someone invested in this asset directly.
On the contrary, the dangers of shorting cryptocurrencies are quite clear. If the investor determines in such a case that the price of cryptocurrency will fall, and it is instead of this increasing, someone can lose everything without exception.
The amount of costs is largely dependent on the devices or methods used to disclose a non-long view, but also with this amount of money was invested.
For example, if a depositor uses a margin to purchase bitcoin in the necessary amount of 5 000 $, and its price because of 2 days falls in Fifty %, in this case, his investment will cost a total of 2 Five hundred dollars.
In addition, they are obliged to return to the exchange or broker loaned funds advantage share that can cause large losses.
No need to lose sight of the possible risk of losing sight of the income, if the price of cryptocurrency after the realization will increase.
Even though the modeling bazaars have a chance to guarantee a certain protection from future costs, they are difficult and require deep knowledge or study to use them correctly.