Many of our readers a constantly involved in the financial market and trade regularly in various sectors. Moreover, beginners are trying to gain some knowledge about the field and maximize their profit. No doubt that we have seen a spike in the usage of Cryptocurrencies like Bitcoin in the market. Crypto is the new way to trade or purchase commodities without using actual money. Several new terms are also coming into the scene where most of you are struggling. Also, users try to get better refunds without spending much time and effort in the process. Hence, people are not sure whether to start investing or not as everything is quite complex.
Our guide will help you to understand various procedures like shorting crypto and methods for the same. If you don’t know how to short crypto, we are here with all the information. Make sure to read the complete guide because skipping a single section will lead to confusion in the end. Moreover, you will gain a better profit share, especially when trading in the longer run.
Table of Contents
What do you Mean by Crypto Shorting?
Before proceeding ahead, we need to understand the actual concepts behind Crypto Shorting. It is one of the most popular techniques in the financial sector to trade commodities or cryptocurrency. Shorting means you expect the price of a particular stock to fall compared to its competitors. Therefore, you borrow some stocks from a dealer at the current price and sell them in the market. Once its price drops, purchase the same stock and return to the dealer with a little interest. There is no need to mention that the current price of any stock or crypto depends on various factors. It is the reason you have to be extremely careful while dealing with the same.
For example, you are interested in a crypto X and undergo research to find that its price will fall within a month. Let’s take the current price to be $1 and expect it to fall in the neighborhood of 10 cents in 30 days. With the same information, you sign a contract with the dealer and borrow 100,000 stocks at the current market price of $100,000. Further, your prediction is true, and now the crypto X is selling at the cost of 10 cents. At this point, you will purchase 100,000 stocks from the trading market with a total sum of $10,000 and sell the same to the dealer. According to mathematics, you made a profit of $90,000 without putting any money on the line.
However, the situation could be a little tricky when the price of crypto X shoots to $2 in the next month. Here, you will have to purchase the stocks at a double price than the selling contract. Therefore, this will result in a loss of $100,000 in no time, and you will end up in debt.
See Also: OCO Order on Binance | Simple Guide on OCO & How it Works
How to Short Crypto?
As previously mentioned, Shorting Crypto is quite simple yet being a risky call for beginners. Today, we have some of the best techniques to short crypto without any issues. Also, these methods are market-dependent and may fail in some exceptional cases.
1. Futures Trade
Like various assets, cryptos have a Futures trading market where a buyer purchases a stock through a contract. The contract contains information like when and what will be the future price of the commodity.
If you buy a futures contract, you must evaluate a higher price of that stock in the future. However, selling the same contract means you predict that the rate will fall accordingly. Hence, you can short crypto with this practice and purchase/sell contracts based on the assumptions.
2. Binary Options Trade
Many experienced traders know the usage of Put and Call options in the market that helps to short crypto. If you execute a put order, you can sell the stocks at the current price even though the rate will drop in the future
The advantage of the same is that you can define a limit of your losses. Moreover, don’t sell the put options and minimize the losses that will occur.
3. Inverse ETP
Inverse Exchange Traded Products is quite similar to futures contracts where you can make huge profits. You can combine the primary asset with multiple derivatives that will provide better returns. Therefore, you can make money by betting on the declining trend of the market.
Once the market falls, inverse ETP rises and provides benefits accordingly. Unlike other agreements, the user only requires a brokerage account to start using Inverse ETPs.
4. Short Sell Crypto Assets
This strategy might not be the best, but a handful of traders with a huge pile of stocks use it. Suppose you have crypto assets that you could sell in the market today.
Once the price drop, buy them again to restore your position. But if the trend goes opposite, you either lose money or crypto assets as a result.
Final Thoughts
We hope you are now quite confident about shorting crypto like a pro and gaining enormous profits. This method might seem easy but includes various minor and major aspects that you must consider. We recommend newbies learn about the complete procedure before investing in the market. If you need a platform to start your trading journey, register here. Don’t forget to focus on various pros and cons as you might end up in debt.
