Many of our readers a constantly involved in the financial market and regularly trade in various sectors. Moreover, beginners are trying to gain knowledge about the field and maximize their profit. We have undoubtedly 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 struggle. Also, users try to get better refunds without spending much time and effort. Hence, people are unsure whether to start investing, as everything is complex.
To Short Crypto Like A Pro, use Short Sell Crypto Assets, Inverse ETP, Futures Trade, or binary options trade.
Our guide will help you to understand various procedures like shorting crypto and methods for the same. We have all the information if you don’t know how to short crypto. Remember to read the complete guide because skipping a single section will lead to confusion. Moreover, you will gain a better profit share, especially when trading longer.
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What do you mean by Crypto Shorting?
Before proceeding, we need to understand the 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 it to the dealer with some interest. There is no need to mention that the current price of any stock or crypto depends on various factors. It is why you must 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 accurate, and now the crypto X is selling at 10 cents. At this point, you will purchase 100,000 stocks from the trading market for $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 must purchase the stocks at double the price of the selling contract. Therefore, this will result in a loss of $100,000 in no time, and you will end up in debt.
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 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 the future price of the commodity will be.
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 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 use of Put and Call options in the market, which helps 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 are similar to futures contracts where you can make huge profits. Combining the primary asset with multiple derivatives 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, users only require a brokerage account to use Inverse ETPs.
4. Short Sell Crypto Assets
This strategy might not be the best, but a handful of traders with vast 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 the opposite, you lose money or crypto assets.
What are the risks of shorting crypto?
Shorting crypto carries risks. If the cryptocurrency price rises instead of falling, you may incur losses. Additionally, if the price increases significantly, there is a possibility of a short squeeze, where you may be forced to buy back the cryptocurrency at a higher price to cover your position.
Is shorting crypto suitable for beginners?
Shorting crypto can be complex and risky, so it may not be suitable for beginners. It requires a good understanding of market trends and analysis. It's advisable to gain experience with regular cryptocurrency trading before attempting shorting.
Are there any fees involved in shorting crypto?
Yes, there are typically fees involved when shorting crypto. These fees include transaction fees, borrowing costs (if you're borrowing the cryptocurrency to short), and interest fees (lending on margin). Ensure you understand your chosen exchange's fee structure before engaging in shorting.
How long can I keep a short position open?
The duration of a short position is flexible and depends on your trading strategy and the rules of your chosen exchange. Some exchanges may have specific time limits or margin requirements for short positions. It's essential to consider the potential costs and risks of maintaining a temporary position for an extended period.
Can I short crypto with leverage?
Yes, many exchanges offer the option to short crypto with leverage. Leverage allows you to amplify your potential returns but also increases the risk of losses. Be aware of the risks associated with leverage trading and carefully manage your positions and risk exposure.
What are some alternatives to shorting crypto?
If you're not comfortable with shorting crypto, there are alternative strategies you can consider. These include buying put options, using inverse ETFs (exchange-traded funds), or engaging in margin trading. Each system has its risks and complexities, so it's essential to research and understand them before proceeding.
We hope you are confident about shorting crypto like a pro and gaining enormous profits. This method might seem easy, but it includes various minor and significant aspects 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 be in debt.