Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, and liquidity needs. Market Rebellion is not giving investment advice, tax advice, legal advice, or other professional advice. Transaction value metrics are also readily available on different websites. Websites that provide price analytics will display the total traded volumes within the past 24 hours, allowing you to assess the popularity of the coin in the market. Moreover, crypto analysts argue that price movements are not random, but they rely upon a trend.

This is an advanced method to hedge a crypto portfolio or profit from sudden volatility. Short-selling Bitcoin can result in massive profit potential but does carry risk. In this guide, we explain what is Bitcoin shorting, how to short Bitcoin, and when to do it.

What Is Shorting?

Please note that selling on an exchange can rely more on liquidity than buying, and is accompanied by borrowing fees, commissions and other costs. The complexity of shorting bitcoin on an exchange means that some traders prefer using a leveraged trading provider to open a short position on bitcoin. Cryptocurrency exchanges have various short selling mechanisms, so examine them to choose the one that suits your needs.

• The other way of shorting Bitcoin is through the prediction market.
• These exchanges often have better security measures in place and even insurance policies in the event of a hack or stolen funds.
• Then you must learn how to manage your risk exposure using stop losses while taking profits at appropriate levels.
• Therefore, any accounts claiming to represent IG International on Line are unauthorized and should be considered as fake.

While this opens up doors for higher profits, it is naturally riskier, too — your position may close sooner than you expected if you’re engaging in leveraged shorting. The biggest downside of shorting is that there is technically no limit on how much money you can lose. Usually, you choose when to close that position (buy back the asset you borrowed) by yourself, but that’s not always the case. If a margin call is issued, then your broker or exchange will automatically buy back the assets you borrowed using the funds in your account. Shorting in the context of cryptocurrency refers to betting against the value of a particular cryptocurrency. As the biggest cryptocurrency, it is unlikely that Bitcoin’s price will drop close to zero for a very long time.

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Market Rebellion’s reference to specific securities or Digital Assets should not be construed as a recommendation to buy, sell or hold that security or Digital Asset. Specific securities or Digital Assets are mentioned for educational and informational purposes only. Fundamental analysis will allow you to determine the intrinsic value of Bitcoin.

CFDs function like leverage trading, where a broker will allow you to bet on the price movement of Bitcoin without actually owning Bitcoin. This lowers the risk of holding an asset whose value is highly volatile. This is the strategy that most short sellers, both new and experts, use to bet on the future drop in Bitcoin prices. On the other hand, a trader with a high-risk appetite will be drawn towards the rewards to be earned when the prices drop.

Spot market trades can fall drastically, but without leverage, there is no chance of liquidation. If the price of BTC falls, BTCDOWN will add leverage in an attempt to increase profits. Inversely, if BTC rises in price, your leveraged token will auto-rebalance, reducing the margin to cap losses and avoid liquidation.

#4. Open Your Short Position

If you are already an investor in crypto, then you are well-versed in the volatility of Bitcoin and all the other cryptocurrencies in the market. The volatility of Bitcoin presents a risk in both spot trading and short selling. https://g-markets.net/helpful-articles/engulfing-candlestick-pattern/ If your prediction comes true, you will realize your profits and take home what you have made. However, with short selling, you do not actually own the token because you borrowed it, making your losses limited.

The most common way to short Bitcoin is by shorting its derivatives like futures and options. For example, you can use put options to bet against cryptocurrency prices. Contract for differences (CFD), in which you pocket the difference between an asset’s actual price and your expected price, is another way in which you can short Bitcoin pricing. A contract for differences (CFD) is a financial strategy that pays out money based on the price differences between the open and closing prices for settlement. Bitcoin CFDs are similar to Bitcoin futures in that they are essentially bets on the cryptocurrency’s price.

How to Short Bitcoin

Yes, it is common practice for investors and traders to short Bitcoin. There are several ways this can be achieved which include using margin, futures contracts, CFDs, or an options trading platform. These strategies allow individuals to sell the value behind Bitcoin and buy it back at a lower price. Many people start short selling Bitcoin by using a margin trading platform dedicated to cryptocurrencies. With this type of trading, you borrow money from a broker, make the trade, hoping that your bet pays off.

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. The put option gains value as Bitcoin loses value compared to this strike price. Finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation.

• If you don’t have that money, and you can’t pay it back, then you aren’t the only one who’s in trouble — your brokerage is too.
• Unlike futures or margin trading, leveraged tokens allow you to short Bitcoin and other cryptocurrencies without the risk of liquidation or the need to monitor a maintenance margin.
• As demonstrated above, there are multiple ways to short Bitcoin.
• For example, if your provider’s rate was 50%, you would put down $2000 in this instance.
• As of May 2022, studies of Bitcoin’s safe-haven status are inconclusive.

At the end of the day, it’s not the activity itself that’s unethical — it’s the (few and far between) people who indulge in unethical practices. Just like other trading practices, short selling requires you to be careful and informed. Thoroughly research all assets you’re planning to short and only ever spend money you can afford to lose. Go to the Risks of Shorting Bitcoin section to learn more about this. As a holder of Bitcoin, if you think the price will go down, you sell at the current price, then buy it back after the price has dropped, making a profit.

How to Short Crypto Step by Step: From Bitcoin to Dogecoin

Choose the [Isolated] tab within this panel to select the isolated margin wallet. You’ll notice that Binance offers up to 10 times leverage for isolated trade positions as opposed to the cross margin positions, which only qualify for three times leverage. The principle of shorting Bitcoin or any other tradable asset is straightforward. 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 can first borrow, then go about your technical analysis, etc. To not get yourself into this nightmare, it is better to play not against the trend, but according to the trend. It’s a bearish game when you see a downtrend, and you have money. Of course, you can make a mistake at the moment of entering the market and sell not at the maximum, but if you guessed right in the general trend, you would still gain profit. A short strategy is the sale of a financial instrument in the expectation that it will fall in price. However, the mechanics of shorting are somewhat more complicated.

Stay with us as we discuss everything about short-selling BTC throughout this discussion. To learn whether the stock is being shorted, examine its long/short ratio. This is also a great way to look out for short squeezes — a situation where the number of short positions for an asset significantly prevails. How you short Bitcoin will depend on several factors, including but not limited to your risk aversion, available funds, level of expertise, and so on.

Calculate stop losses prior to entering the trade by using a PnL calculator or a percentage price measurement tool. Shorting Bitcoin (or any asset) is a trading practice in which the investor seeks to benefit from a falling price of the coin. In its simplest form, the investor borrows the asset from a broker, sells it, and buys it back to refund, keeping the difference as a profit (or loss). The Bitcoin futures market allows counterparties to get into settlement contracts in which either party will buy or sell the asset at a predetermined date and for a specific price.

However, unlike futures, losses are limited to the purchase price of the options contract and cannot rise or fall indefinitely. Shorting any market and trading on leverage can be complicated and is considered high risk. Before shorting Bitcoin, familiarize yourself with the following concepts and tools to help better understand what’s happening behind the scenes of your trade. On the flip side, shorting comes with risks that you, as an investor, need to consider before opening any trade.

Popular crypto prediction markets are Augur, GnosisDAO, and Polymarket. There are two main ways of making shorting a part of your trading strategy. Keep in mind that trading with margin may be subject to taxation. However, you cannot rely on the transaction count alone to make your decision because it can be unreliable. Sometimes, increased activity on a network could be triggered by the same group of traders transacting between different wallets. When conducting this analysis, look at the factors that influence the demand and supply of Bitcoin.