Short Selling Bitcoin: a 5 Step How-to Guide

Via an options contract, you can sell Bitcoin or other cryptocurrencies at the price of today, later in the future, even if the price falls. Among the best binary option trading platforms of 2020 are IQ Option and Binary.com. There is also a futures market that enables short traders to trade over 110 coins with leverage up to 100x. KuCoin is also unique as it includes in-built crypto bots to assist with shorting crypto between a grid. When looking for an exchange to use for margin trading, ensure it meets your demands. It offers a wide range of benefits to both new and expert traders.

If the price goes down, you can buy back the Bitcoin at a lower price and return it to the lender. If the price goes up, you will have to pay that higher price, whatever it is, to re-buy the Bitcoin and return it to the lender. Inverse exchange-traded products are bets that an underlying asset’s price will decline.

Contracts that let you buy BTC at a lower strike price are termed Call options. Similarly, contracts that let you sell BTC at a higher strike price are called put options. You can have accounts on multiple exchanges and brokerage platforms to check how much BTC you can borrow. Note that borrowing would require some form of collateral and incur interest. However, shorting using derivates can also work if you want to avoid trading BTC directly.

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A trader needs to sell an asset they hold, to buy it back at a lower price. Now, if the asset that you sell is yours, you are not particularly making any money when you buy it back later. Eberle says that sometimes shorting crypto can be a complex process involving numerous exchanges. “You’d do a put on the crypto,” says Mark Fidelman, founder of DeFi marketing agency SmartBlocks, and the host of the Cryptonized podcast. A put is, in essence, a bet that an underlying asset will lose value, which is why it could be used to short a cryptocurrency.

At the time of writing, bitcoin is trading in a parabolic
trend, which brings us to the above truism. Ultimately, what goes up must come
down at some point, at least in relative terms. So, if for instance you put $10,000 dollars in bitcoin, and it suddenly collapsed and became worthless, then your potential losses would be limited to $10,000.

RSI indicator also helps determine the overbought and oversold regions related to a crypto asset. Shorting, as an investment principle, is no different for bitcoin. However, with crypto being the focal point of this discussion and BTC being the most dominant crypto, this discussion requires additional detailing. Practise trading risk-free with virtual funds on our Next Generation platform.

How does this affect my Bitcoin?

Therefore, if the trade does not go as expected, you will have suffered monetary loss, and you will still not have Bitcoin in your wallet account. Bitcoin and cryptocurrencies, in general, are usually ranked as highly-volatile assets due to unexpected price movements. Volatility affects long positions, and traders that have held Bitcoin and expect the prices to fall can use short-selling to hedge against the risk.

Bitcoin (BTC) is an extremely volatile asset, characterised by unpredictable price swings and large price movements. Bitcoin’s value reached a high of over $19,000 (£14,000) but then fell to around $7,000 (£4,900) in a matter of months. Traders can attempt to take advantage of its volatile nature by short selling bitcoin. However, short selling is not for the novice trader as it carries different risks to buying bitcoin. This article will teach you how to short bitcoin, where you can do so and what to look out for.

In addition, COVO utilizes a multi-asset pool, COVOLP, which helps to minimize third-party custodial risk. COVO Finance’s DeFi leverage trading platform is an excellent option for those looking to short crypto and maximize their returns. Margin trading is arguably the most common short-selling technique.

Bitcoin exchanges

Price volatility in the underlying asset can make it difficult to accurately predict the price movement of the underlying asset. Some of the biggest futures trading venues of the cryptocurrency are not regulated. This means that investors have fewer recourse options if something goes wrong with their trade. Crypto trading platforms will typically charge a transaction fee to short crypto. The fees will vary depending on the exchange, but will generally include commission fees, trading fees, spreads, and overnight fees.

According to your expectations, the asset’s price will drop over time. If this scenario happens, you buy back the asset at a lower price and repay the debt, making a profit which is the difference between your selling and buying prices. While shorting crypto can be a handy tool to make money in a volatile market, it can also be risky when the price movement of a particular asset drastically changes over a short period. The amount of your loss depends on the methods you use to open a short position and how much you have at stake.

First, let’s talk about the risks of shorting crypto (and how you can mitigate them). Bitcoin futures are a legal contract that allows you to buy or sell bitcoin on a specific date, for a specified amount. However, the availability of a futures contract soon developed past commodities. Futures contracts can now be accessed from several asset classes, including cryptocurrencies such as bitcoin. Futures are, however, a complex financial contract and may be better suited for experienced traders.

What is the best way to short Bitcoin?

Most cryptocurrency assets are characterized by high volatility. The use of shorts and longs enables traders to profit from price fluctuations. Regardless, only experienced traders should consider shorting with large amounts. If successful, shorting could produce life-changing money in a relatively short timeframe.

• For example, if you are analyzing Bitcoin, you can look at the current trading volumes and compare that to future volumes.
• They are, however, a flexible option for short selling bitcoin as you only initially risk the options contract premium.
• If you short sell 10 Bitcoins, for example, you will eventually have to “cover” those 10 Bitcoins, whether prices rise or drop.

Fundamental analysis will allow you to determine the intrinsic value of Bitcoin. Looking at different factors can help you determine whether the price of Bitcoin is overvalued or undervalued. The hype will eventually die down, the uptrend will be exhausted, and a price correction will follow shortly after. If there is an expected government crackdown, use the opportunity to short Bitcoin. However, ensure that the trade you are making will not land you in trouble with regulators.

The most common method of shorting bitcoin is through a market exchange that accepts the shorting of bitcoin. Bitcoin traders who speculate that the bitcoin market will fall can open a short position. However, they must borrow the cryptocurrency from a broker or another willing lender. Once they borrow the bitcoin, they sell it immediately.If the price drops, traders can buy back the amount of bitcoin they borrowed at a lower price. The trader then returns the shares owed to the borrower whilst profiting from the price difference.

If prices drop, it will be cheaper to buy these 10 Bitcoins back. While there are no price impacts for trades, there can be slippage due to price movements between when your trade transaction is submitted and when it is confirmed on the blockchain. In line with the Trust Project guidelines, the educational content on this website is offered in good faith and for general information purposes only.

Instead, funding is used to make sure the perpetual price is anchored to the spot market. Mark price is used to calculate a users’ unrealized profits and losses (UPL) in order to reduce unnecessary liquidation in volatile market conditions which are sure to come. If you want to short Bitcoin, you can do so on a cryptocurrency exchange.

Technical analysis involves studying a specific cryptocurrency’s historical price and trading volume data to identify patterns and predict future price movements. Fundamental analysis, on the other hand, involves studying a cryptocurrency’s underlying technology and use case to assess its long-term potential. By combining both techniques, traders can understand the market and make more informed decisions. If you are looking to short-sell bitcoin, you must first borrow BTC from the relevant platforms to open a short position. The second strategy, which is riskier, is based on the use of short positions.

The easiest way to short Bitcoin on Kucoin is by using the perpetual futures market. Once your main account is funded with USDT, transfer funds from the main account https://g-markets.net/helpful-articles/trading-the-inverted-hammer-candle/ to the futures account. Once there’s USDT in the futures account, select the leverage and the amount of capital you want to allocate to the particular trade.