Playing against Cryptocurrency: 6 best options
The markets for cryptocurrencies today are inherently unstable. If a cryptocurrency is rising today, it might fall tomorrow in a way you couldn't have predicted. The prices of many cryptocurrencies actually fluctuate throughout the day. Cryptocurrency volatility, combined with regulatory actions, can cause fear-driven flash crashes and minor retracements following significant rallies.
In order to prevent losses from occurring in these circumstances, you can take advantage of a concept known as short selling, which enables you to profit when prices are falling even if you do not own the underlying cryptocurrency that you are short-selling. The pros at TradersUnion explain cryptocurrency shorting in this article, along with the risks involved and how to do it.
How to short sell a cryptocurrency on crypto exchange:
Choose a cryptocurrency exchange
Sign up for the cryptocurrency exchange and verify
Deposit money
Select the token you want to short
Select the “Short Sell" button in trad
Can you short cryptocurrencies?
Shorting a cryptocurrency involves first selling it in the hopes that its value will decline, then repurchasing it at a lower cost to make a profit. It is possible to short Bitcoin and other cryptocurrencies, even though short selling is typically associated with the stock market. As cryptocurrency exchanges have developed over time, they have started to make it possible for traders with a large order book to short cryptocurrency options.
Therefore, you can still short cryptocurrency. It might be wise to short cryptocurrency pairs, though, that have a reputation for having high liquidity or a steady high trading volume throughout the year. Considering that price manipulation is much less likely to affect cryptocurrencies with high trading volumes. Of course, the broker/exchange handles every aspect of the procedure.
How to Short Bitcoin? A Step-By-Step GuideShorting cryptocurrency: 6 ways to do it
Shorting a cryptocurrency might be a wise move for investors who think the cryptocurrency market will crash at some point in the future. With cryptocurrency gaining more attention in the world of traditional finance, there are more places and ways than ever to short it. You can short cryptocurrency in the following ways.
What is Short Selling? Definition And Use CasesMargin Trading
Margin trading, which is frequently carried out through a margin trading platform like a cryptocurrency broker or exchange, is one of the ways to short cryptocurrency. Investors effectively borrow money from brokers to use for trading, enabling them to have more control over a larger position. For instance, if a trader only has $200 in their account but wants to buy $1200 worth of Bitcoin, they will need to borrow the additional $1000 from a broker or exchange or use margin to cover the difference.
Margin traders typically borrow money to buy cryptocurrency, sell it when its value rises, pocket the difference, and then repay the loan with interest. Depending on the exchange or brokerage you use and whether that exchange permits it, it is possible to trade cryptocurrencies on margin. However, because you are borrowing money, there will usually be interest charges, and there is also a chance that you could lose more money than you have in your account.
👍 Pros
• It could aid in funding the purchase of promising cryptocurrencies
• The leverage can be used to investors' advantage
• Provides greater flexibility for loan repayment
• Increased purchasing power is a benefit of the credit
👎 Cons
• Not all cryptocurrencies can be purchased on margin
• Interest rate is high
• In case of losses, other securities might be subject to forced liquidation
• The cost of investment is high
Short-Selling Bitcoin Assets
Consider that you predict a decline in the price of Bitcoin. You could profit from that price decline by short-selling Bitcoin. To short-sell Bitcoin, you would place a sell order with a broker who supports margin, sell it at the going rate, and then buy it back at a lower rate. Your profit would be the price difference.
Consider the scenario where you shorted Bitcoin at a price of $10,000 per coin. You would purchase it back if the coins' value dropped to $9,000 each. Your profit, which you would keep, would be the $1,000 difference.
Of course, you would still have to buy it back at a higher price if Bitcoin's value increased rather than decreased in order to return it to the exchange you borrowed it from. Therefore, shorting cryptocurrencies can be risky because there is no cap on the losses you can sustain if prices increase. Nevertheless, you stand to gain financially if you are correct and the price does decline.
👍 Pros
• Potential for large profits
• Little upfront money needed
• Possible leveraged investments
• Protection against other holdings
👎 Cons
• Perpetual losses
• Difficult to borrow
Using Bitcoin CFDs
The use of a contract for difference (CFD) is a more sophisticated shorting strategy. The contract pays the difference in an underlying asset's price between its open and closing prices. Depending on your position, you might make money if the price was lower on the close date, and vice versa. Therefore, if you short cryptocurrency using a CFD, you are betting that the price of the cryptocurrency will fall.
Here is an illustration of how this might function: Bitcoin costs $10, and you anticipate a decline in its value. You carefully monitor the markets and open a CFD position to reflect that. When Bitcoin's price reaches $8, the contract expires, and you've placed the winning wager, you will profit in accordance with the terms of the agreement.
Keep in mind that CFDs are unregulated derivatives. In fact, using them as retail investors in regulated markets is prohibited in the US. However, because the cryptocurrency market is unregulated, crypto traders may use them. There might also be expenses, like commission fees, to take into account.
Best Crypto CFD Brokers and Trading Platforms👍 Pros
• Crypto wallets and on-chain transactions are not required because trades are settled in fiat money
• Used to hedge open long positions
• High potential returns
👎 Cons
• Fast-paced CFD trading necessitates constant observation
• Bitcoin CFDs, in contrast to perpetual futures, have an expiration date and cannot be held indefinitely
• Higher risks from using leverage
Futures Market
Like other assets, Bitcoin has a futures market. In a futures transaction, a buyer consents to buy a security in exchange for a contract that details when and how much the security will be sold. If you sell a futures contract, it suggests a bearish mindset and a prediction that Bitcoin will decline in price. In this context, you can short Bitcoin by purchasing contracts that bet on a lower price for the cryptocurrency.
Around the time of the surge in cryptocurrency prices at the end of 2017, trading in Bitcoin and other cryptocurrencies went mainstream. It is now accessible on a number of different platforms. At the largest derivatives trading venue in the world, the Chicago Mercantile Exchange, as well as on cryptocurrency exchanges, you can short crypto futures. The important thing to remember is that this shorting strategy might not work if the price of Bitcoin rises, but an investor could profit greatly if the market turns.
👍 Pros
• Entry into the futures market is not difficult
• It's simpler to short sell
• Affordable fees
• Futures can be used to reduce the risk of unforeseen price changes
👎 Cons
• Increased complexity
• Highly leveraged, with a risk that the investor could lose more money than they invested
• Highly speculative with a risk of substantial losses
Binary Options Trading
Shorting cryptocurrency is also possible with binary options trading. The term "binary option" refers to the right to buy or sell a specific asset at a predetermined price in the future. Additionally, traders can short cryptocurrencies like Bitcoin by using call and put options. Executing a put order, most likely with the aid of an escrow service, is how you short the currency.
There are several offshore exchanges where binary options can be purchased, but the costs (and risks) are high. You can limit your losses by choosing not to sell your put options, which is one advantage binary options have over futures. Your losses are therefore limited to the cost of the put options that you purchased. Deribit and OKEx are well-liked exchanges for trading options.
👍 Pros
• Losses are limited to the cost of purchasing the option
• By hedging positions, options can reduce risk
👎 Cons
• It can be difficult to open a position in options
• Trades in options that are poorly managed may incur losses and expire
Prediction Markets
Prediction markets, in which stakes are placed on the outcomes of future events, are another way to short Bitcoin and other cryptocurrencies. Cryptocurrency prediction markets are comparable to those in traditional markets. Investors are able to design an event and place a bet based on the results.
Therefore, you could forecast that Bitcoin would decrease by a specific amount or percentage, and if someone accepted your wager, you would stand to gain if your prediction came true. Those who don't want to spend money on cryptocurrency purchases can still participate in the market by shorting cryptocurrencies on prediction markets like Gnosis, Argur, and Polymarket without actually owning any cryptocurrencies.
In contrast, using prediction markets to short cryptocurrency is regarded as a high-risk tactic because it calls for making predictions about the future, where there is an unlimited risk of losing money. Along with a thorough understanding of how prediction markets operate, it also calls for some knowledge of market trends and research in this area.
Forex Quotes: How to Read and Understand👍 Pros
• You don’t need to hold any crypto asset to short-sell it
• Ease of use
👎 Cons
• The potential for losses is unlimited
• High commissions
How to short crypto – a step-by-step guide
Follow the detailed instructions in this tutorial from TU experts to learn how to short cryptocurrency:
Choose a cryptocurrency exchange, register there, provide verification information, and create an online trading account
Deposit money using a debit card, credit card, bank transfer, or a cryptocurrency like Stablecoins, Bitcoin, or Ethereum
Conduct a market analysis of cryptocurrencies. It is crucial to research the cryptocurrency market using different types of analysis
Select the token you want to short by visiting the derivatives section of the cryptocurrency exchange
Go short and "sell" any cryptocurrency you desire, including Bitcoin. Enter the number of tokens you want to short and click the "Open Short" button once you've decided you want to short a currency and have established the necessary risk management conditions
According to TU experts, it's crucial to adhere to your risk management plan when shorting any cryptocurrency.
How to Short Currency in the Forex MarketRisks and opportunities of shorting cryptocurrency
Without a doubt, shorting cryptocurrency has advantages. One can choose to short-sell a cryptocurrency if they believe it to be overvalued in order to profit from a future price decline. Hedging risks is another advantage of short selling. Shorting may be advantageous for a trader whose larger portfolio feels vulnerable to a potential downturn. If the deal is executed properly, the short position may be able to lessen the impact of losses incurred by the long positions
On the other hand, there are two main risks to shorting crypto. Price risk comes first, as price volatility in the underlying asset can make it difficult to accurately predict the price movement of the underlying asset.
Regulatory risk, or the lack thereof, is the second major risk. Some of the largest cryptocurrency futures trading platforms are unregulated. In the event that something goes wrong with their trade, investors will have fewer options for recourse. Before deciding on short investments, especially the volatile cryptocurrencies, TU experts advise conducting thorough market research.
How to Use Risk Forex Risk Management EffectivelyCryptocurrency Short-Selling Strategie
When shorting Bitcoin or any other cryptocurrency, traders can use many of the strategies listed by TU experts below.
Trading Strategies: What to Choose to Trade BetterTechnical and fundamental analysis:
One of the best strategies for shorting cryptocurrencies is to combine technical and fundamental analysis. Technical analysis is the process of analysing historical price and trading volume data for a particular cryptocurrency in order to spot trends and forecast future price movements. The goal of fundamental analysis, on the other hand, is to evaluate a cryptocurrency's long-term potential by looking at its underlying technology and use case. Traders can comprehend the market and make more informed decisions by combining the two methods.
Diversification:
When shorting cryptocurrency, portfolio diversification is also crucial. Shorting a variety of cryptocurrencies can help you diversify your holdings and lessen the impact of a losing trade. Furthermore, it's crucial to monitor market conditions and be ready to modify your strategy as needed.
Short-term shorting:
Short-term shorting is another tactic in which you take a short position for a brief period of time, typically days or weeks. This kind of shorting, also referred to as scalping, can be a good way to generate quick profits. This strategy necessitates a high level of risk tolerance, though, and a solid grasp of the market environment.
Keeping in mind that not all investors should short cryptocurrencies is also important. High levels of risk tolerance and a thorough knowledge of market dynamics are necessary. TU analysts suggest that if you're just starting out in trading, it may be best to adopt a more cautious strategy, such as buying and holding.
How to short US dollar and other currencies on the Forex market?Is it a good time to short crypto? Top Cryptocurrencies price predictions
Although the future of the cryptocurrency market cannot be predicted with complete certainty, it is reasonable to believe that in 2023, the market will recover from its recent downturn. The price predictions from TU analyst for Bitcoin, Ethereum, XRP, and other popular cryptocurrencies will be uploaded later.
All Cryptocurrency Price Predictions for 2024, 2025, 2030Best platforms to short crypto
Exchanges for cryptocurrencies provide a variety of platforms for shorting coins. Investors may use margin accounts to borrow coins on some exchanges. Others allow for lending via futures contracts. The two top cryptocurrency exchanges that permit short sales are listed in the text below.
Best Crypto ExchangesBybit
Bybit is a Singapore-based international exchange for cryptocurrency derivatives. It offers a variety of products, including futures trading, spot trading, and trading on margin. It doesn't require KYC, has a sizable insurance fund, gives market makers rebates, levies modest funding fees, and, most importantly, has strong liquidity. The exchange is a desirable option for those looking to take larger short positions on cryptocurrencies because it offers leverage of up to 100x.
Bybit has relatively low fees, with maker and taker fees of 0.10% each. However, the platform also charges a daily interest rate that fluctuates constantly but is around 0.006% for BTC and 0.009% for ETH. In addition to the high leverage, numerous cryptocurrencies, including BTC, ETH, USDT, and XRP, are supported by Bybit.
Despite not being accessible in the United States, Bybit is renowned for its sophisticated trading features and has a monthly trading volume of over $30 billion. Derivatives markets, on the other hand, can be complicated and difficult for novice traders to understand, making them more suitable for seasoned traders.
On Bybit, traders must first fund their accounts with funds before choosing the token they want to short. Then, on the trading interface, click the Sell/Short button after selecting the amount to be short. Before starting the short position, Bybit will ask traders to confirm the trade.
Is ByBit a Good Crypto Exchange for Beginners?Binance
One of the biggest centralized cryptocurrency exchanges in the world, Binance provides users with a variety of features, such as margin trading and futures trading. With Binance, traders can borrow up to 100 times their initial investment when shorting cryptocurrencies. Additionally, Binance provides a selection of trading pairs, such as BTC/USDT, ETH/USDT, and LTC/USDT.
Due to its numerous trading pairs, multi-asset collateral, cooling-off period, and insurance fund, Binance is among the best platforms for shorting cryptocurrencies. Numerous trading pairs are available through Binance Margin, including uncommon trading pairs that are very risky due to price manipulation. Additionally, it gives traders more choices when deciding which cryptocurrency to short.
By making a deposit into their brand-new margin trading wallet, borrowing the necessary amount, trading on the exchange page, and repaying the debt, users can start margin trading on Binance. To prevent automatic liquidation, it is crucial to closely monitor the margin level and take the appropriate steps.
There are many features and options that can make your experience with margin trading more responsible and enjoyable. This is one of the benefits of shorting cryptocurrencies on Binance. Cons include the risk associated with leveraged and margin trading, as Binance supports a lot of high-risk assets. Always being aware of the risks is crucial, as is using the tool with knowledge, care, and purpose.
Binance Staking Guide | All Supported Tokens and RewardsSummary
Using borrowed money when you short Bitcoin or another cryptocurrency is risky. In the event of a strong price spike, the exchange may seek further margin money or liquidate your position if it falls below the maintenance margin amount. You should always use a stop loss and exercise caution when shorting, according to TU experts. They strongly advise against shorting cryptocurrencies if you are new to trading because it is particularly risky for beginners.
FAQs
What does shorting cryptocurrency mean?
When you short cryptocurrency, you borrow some digital money from a broker and sell it for the current market rate. Once the value of the cryptocurrency has decreased, the trader repurchases it and pays the broker back with the borrowed funds plus any interest. The profit is the difference between the cost of buying and selling the crypto
Where can I short Bitcoin?
There are several crypto platforms on which you can short Bitcoin or any other cryptocurrency. Some of the best include Bybit, Binance, and Robinhood. It ultimately depends on the trader's individual needs and preferences. Traders should research and compare different platforms before deciding which one to use for shorting cryptocurrencies
How can I short crypto?
You can start shorting cryptocurrencies in a variety of ways. One of the simplest ways to short crypto is through a margin trading platform for the currency. Many exchanges and brokerages allow this kind of trading, and margin trades let investors "borrow" money from a broker in order to execute a trade
Can I short Bitcoin on Binance?
Yes, you can! Binance is a leading exchange for shorting crypto, with several options at hand to enter a short-sell position
Glossary for novice traders
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Cryptocurrency
Cryptocurrency is a type of digital or virtual currency that relies on cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks, typically based on blockchain technology.
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Broker
A broker is a legal entity or individual that performs as an intermediary when making trades in the financial markets. Private investors cannot trade without a broker, since only brokers can execute trades on the exchanges.
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Bitcoin
Bitcoin is a decentralized digital cryptocurrency that was created in 2009 by an anonymous individual or group using the pseudonym Satoshi Nakamoto. It operates on a technology called blockchain, which is a distributed ledger that records all transactions across a network of computers.
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Trading
Trading involves the act of buying and selling financial assets like stocks, currencies, or commodities with the intention of profiting from market price fluctuations. Traders employ various strategies, analysis techniques, and risk management practices to make informed decisions and optimize their chances of success in the financial markets.
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Investor
An investor is an individual, who invests money in an asset with the expectation that its value would appreciate in the future. The asset can be anything, including a bond, debenture, mutual fund, equity, gold, silver, exchange-traded funds (ETFs), and real-estate property.
Team that worked on the article
Winnifred Emmanuel is a freelance financial analyst and writer with years of experience in working with financial websites and businesses. Her expertise spans various areas, including commodities, Forex, stocks, and cryptocurrency. Winnifred tailors her writing to various audiences, including beginners, while also providing useful insights for those who are already familiar with financial markets.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).