How to Short Crypto?

Shorting Crypto is becoming increasingly popular among experienced traders looking to capitalize on even the most incremental price fluctuations. However, there are risks associated with all types of investments, but if done correctly, it can be very lucrative and yield huge returns. This article will provide a step-by-step guide that will teach you how to short Crypto.

What is Crypto Shorting?

Shorting Crypto is a way of making money by selling a crypto asset for more than you bought it for. You would do this when you think the price of a cryptocurrency will go down.

You will sell it instantly, and after some time, you can buy it back at a lower price, making a profit from the difference. Taking the opposite approach, a ‘long position’ is when you buy an asset and keep it to sell it for a higher price later. This is when you’re betting that the price will go up!

How Does a Short Work in Crypto?

There are two main ways short-selling works in Crypto. Let’s take a look at each one in turn.

Short Crypto via a cryptocurrency exchange: Most crypto traders short Crypto via a crypto exchange. Part of that reason is that exchanges offer leveraged shorting. Leveraged shorting means borrowing more assets to short sell. Some of the exchanges that allow short selling include Kraken, Bitfinex, BitMEX, and Binance.

Short Crypto via a leveraged trading provider: Unlike cryptocurrency exchanges, leveraged trading providers allow traders to open short positions without owning the underlying asset. Instead, the trader deposits to guarantee they can buy the Crypto at the price they are betting on.

In sum, the deposit acts as collateral. So, in order to start trading, traders need to speculate whether the price of an asset will rise or fall. The profit or loss then depends on whether their predictions come true.

How to Short Crypto: 5 Ways

There are several shorting crypto ways you can choose. Here are some of the most common ones.

Method 1: How to Short Crypto via the Futures Market

The futures market is a way to bet on the future value of an asset or commodity. By signing a legal futures contract, buyers and sellers agree to buy or sell a specified amount of Crypto at an agreed price on a particular date.

Sellers will typically expect the asset’s price to fall, so they sell the futures contract at a predetermined settlement price with the hope of buying back at a lower cost and making money off the difference. If that prediction doesn’t pan out, sellers will have to buy back the asset at a higher cost than their settlement price, which can result some time in massive losses.

Method 2: How to Shorting Crypto using Margin Trading

Another way to short Crypto is through margin trading. It involves borrowing money/assets from a broker or exchange. You will use the borrowed assets to short sell at the current market value, wait for the price to fall, then buy them back at a profit.

The strategy works if one doesn’t have enough assets. So, you get to make more profit when the price of an asset falls. However, one pays the exchanges that loaned them assets more funds if the price rises.

Method 3: Short Cryptocurrency using Binary Options Trading

Binary option trading contracts offer trading “options” and not “obligations” as with future contracts.

How it works:

It can either be a call (option to buy) or a put (option to sell) on that contract. If the price falls within the specified time frame, you earn a profit.

But, if it rises, you won’t lose any money except the fee you paid to place the bet.

Method 4: Prediction Markets

Prediction markets offer crypto investors a chance to interact with one another. It’s almost the same as how traditional mainstream markets work.

How it works:

You can create a short-selling event while using Crypto trading apps. This entails predicting that an asset’s price will fall by a certain percentage or margin. Other investors may take you up on that wager. If the prediction is correct, you take the profit home.

Method 5: Trading CFDs

CFDs, or contracts for difference, are leveraged trading providers. These trading providers allow you to short-sell Crypto without owning the underlying asset.

What are the Reasons for Shorting Crypto?

Here are the reasons for shorting Crypto:

  • Volatility: Cryptocurrency prices often skyrocket or crash at a moment’s notice. This is a great opportunity for crypto traders to profit from price differences. Unfortunately, it also implies the possibility of massive losses. That’s why crypto investors must research before entering the market.
  • Skepticism: There are many investors who worry about investing in cryptocurrencies. Some think it’s a Ponzi scheme that will soon collapse, while others think it’s a passing fad. As a result, some investors may choose to short Cryptocurrency based on how they feel about it.
  • Hedge: This helps investors to protect their portfolio even during bear markets where prices of assets fall significantly.

What are the Best Exchanges to Short Crypto?

Here are some of the best exchanges you can use to short Crypto:

1) Binance

Binance

Binance is the world’s biggest cryptocurrency exchange and offers a number of trading futures for both beginner and advanced traders. It offers services like margin trading and futures markets for short selling. Binance also gives you the option to leverage a price drop on crypto assets.

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2) Bybit

Bybit

Bybit specializes in active online crypto trading. The exchange accepts short-selling via margin trading and futures markets, as well as other services like staking, loans, and trading NFTs. The exchange provides leveraged trading to accelerate returns. Crypto traders can access up to 100x leverage on bitcoin and 50x leverage on other currencies.

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3) KuCoin

KuCoin

KuCoin is a global crypto exchange offering a diverse range of products. Among the platform’s features are spot and margin trading, alongside lending, futures, and trading bot services. The exchange’s leverage positions go as high as 5x without KYC and up to 20x with KYC.

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How to Short Bitcoin on Binance

Binance is a leading cryptocurrency exchange that accepts short selling of Bitcoin. Here’s how you can short bitcoin on Binance.

Step 1) Create or log in to your Binance Account.

Step 2) Add funds to your Margin account by going to Wallet and clicking Fiat and Spot.

Step 3) Then click transfer and add the amount of USDT you want to add as collateral in your Margin account.

Step 4) Now go to the Trade option and choose Margin.

Step 5) Here, choose the Cross 3x option, and in the Margin Sell BTC section, select Borrow. Then add the amount of BTC you want to borrow and click Margin Sell BTC.

Step 6) An Order Confirmation dialogue box will pop up. Here Click on Confirm to open your position.

Advice on Shortening Crypto

Here are some quick tips and tricks on shorting bitcoin crypto:

  • Do Your Research: Doing your research ahead is the best way to make a trading position. Make sure to use both technical and fundamental analysis.
  • Use a Dependable Cryptocurrency Broker: Only select the best crypto trading apps, as some are not reliable. Some may be unlicensed and, thus, risky or complicated to use. Others may have had a hacking history in the past that may put your investments at risk.
  • Manage Your Risk Wisely: You want always to manage your risk wisely. For example, you may take out leverage to hedge against a long-term position, which makes more sense. But risking high leverage without any stops could get ugly.
  • Create a complete Plan: When shorting Crypto, you should make sure you have a plan. Know when to get in and when to get out. As much as sentiment may play a role in shorting Crypto, it’s always a good idea to have a plan you can stick to.
  • Stay Disciplined: On the same thread, you might get tempted to keep your short position open as prices continue to fall. However, you should remember that Cryptocurrency is a volatile asset. Anything can happen at any time. So, if you have a plan, stick to it.

Shorting is a way to make money when the price of a cryptocurrency goes down. It is essentially betting against the price of a cryptocurrency.

Margin trading, on the other hand, is done when you trade with borrowed funds from the exchange or broker and repay them with a profit.

Yes, shorting Crypto is legal. You can short Crypto using any cryptocurrency exchange/broker available in the US. Although, most shorting crypto providers are unregulated and unlicensed in the US. So, choosing a reliable exchange/broker is best when you want to short Crypto.

Shorting cryptocurrencies can be profitable but is not without risk. Crypto markets are notably volatile, meaning prices can change rapidly, which could lead to substantial losses. If your prediction is wrong, you could lose more than your initial investment, particularly when leveraging. Additionally, regulatory uncertainty and potential platform instability add risk. Shorting should be approached with careful consideration, thorough market research, risk management, and a well-structured trading plan. As with any investment strategy, it is recommended only for those who understand the market dynamics and risks involved. Always consider your risk tolerance before engaging in short-selling or other speculative trading methods.

Here are some important factors to consider when shorting bitcoins.

  • The market conditions: You need to consider whether the market bullish or bearish? Are people buying or selling bitcoins? What is the overall sentiment toward Bitcoin? After considering all of these factors you can take a decision on your short trade.
  • Volatility: Cryptocurrencies are highly volatile, so prices can jump up or down rapidly in a short period. Ensure you’re prepared for price fluctuations before entering a short sale.
  • Your timing: Be sure to time your short sell correctly so that you don’t miss out on any profits.
  • Liquidity: It can be difficult to find buyers when selling your bitcoins during a bear market, so you should make sure you have liquidity lined up before going through with the trade.

Shorting Crypto Summary

Shorting Crypto involves selling a cryptocurrency at a high price and repurchasing it when the price drops. This strategy, utilized when expecting a price decrease, contrasts with ‘long positions’, where assets are bought and held for price appreciation. Shorting can be conducted via a cryptocurrency exchange or leveraged trading provider. Common methods include futures market, margin trading, binary options trading, prediction markets, and contracts for difference (CFDs). Reasons for shorting crypto include market volatility, skepticism, and portfolio hedging. Key advice for shorting crypto includes conducting thorough research, using dependable brokers, managing risk, creating a comprehensive plan, and maintaining discipline.