It is possible to short Bitcoin and profit—if you can tolerate the risks and time it right, shorting Bitcoin can generate large profits. There is no stock that shorts Bitcoin, but there are exchange-traded funds that do so. Funds that short assets are generally called inverse funds because they attempt to return the inverse of falling prices. CFDs have a more flexible settlement tenure than Bitcoin futures, which have predetermined settlement dates.
Shorting Bitcoin is borrowing the cryptocurrency, selling it, and buying it back later when prices are lower. The number of venues and ways in which you can short Bitcoin has multiplied with the cryptocurrency’s increasing spotlight in mainstream finance. Short selling is an investment method that allows you to benefit from drops in the price of a particular asset. When an investor speculates on the decline in a tradable asset such as Bitcoin, stocks, or other securities prices, they can gain profits using shorts. In a short sale scenario, you bet against the price of the asset in question.
How to short Bitcoin: a BTC short example
Our information is based on independent research and may differ from what you see from a financial institution or service provider. When comparing offers or services, verify relevant information with the institution or provider’s site. Typically, taker fees are higher than maker fees as you’re removing liquidity from the market instead of providing additional tradable funds. Although liquidation is not a concern, if the market moves against you, you may be forced to purchase BTC at a higher price than you sold it for.
Crypto options trading
As mentioned earlier, a short position will involve you borrowing Bitcoin from the broker to sell therefore, we will use the [Selling] panel to borrow and set up the trade. CFDs (contracts for differences) are a type of derivative that allows you to trade the price of Bitcoin without actually owning it. When you short Bitcoin CFDs, you are essentially betting that the price of Bitcoin will go down. For the purpose of this guide, we are borrowing and thus shorting BTC.
How to short-sell Bitcoin through Margin Trading (Step-by-Step)
- These investment derivatives allow you to “bet” on the price of Bitcoin without having to actually purchase it.
- If a trader is long on an asset — such as a security, commodity or cryptocurrency — they’ll enjoy gains if the asset’s price increases.
- Derivative contracts allow the trader to gain exposure to the price movement of an underlying asset (e.g., Bitcoin) without having to actually own it.
- In the past, major countries, such as China have put heavy pressure on the market.
We’ll first look at the basics of taking a position in a market by considering the difference between being long on an asset and being short. However, this long-term price appreciation hasn’t happened without sharp drops and several bearish phases along the way. Spot market short-sellers are typically those who are holding Bitcoin long term. They will ride the trend up, sell near the top and rebuy for a gain or accumulate additional BTC as the market corrects. To short Bitcoin, you would purchase a put option that would give you the option, but not the obligation to sell Bitcoin at today’s price at a later date. You should have a strong grasp of trading and investing and an understanding of order types, candlestick charts, collateral and margin requirements before you get started.
You repurchase the same amount, 1 BTC, to cover the short, and then return it to the exchange to close the position. As it is not a derivative market, it does not allow for leverage and is the lowest risk, lowest reward strategy. Spot traders can sell and rebuy Bitcoin for substantial gains if done correctly. Short selling Bitcoin requires holding BTC on the spot market instead of using collateral such as USDT for leveraged trading. Mismanaged trades have the potential to unravel quickly and your collateral can be liquidated (taken by the exchange to cover losses). Shorting any market and trading on leverage can be complicated and is considered high risk.
Step 2: Deposit the required collateral to initiate a short position
Therefore if the value of Bitcoin is falling, the Bitcoin inverse ETPs will rise. Deposit the required collateral, often in USDT or BUSD, to initiate a short position. Outside of his role at CoinCentral, Steven is a co-founder and CEO of Coin Clear, a mobile app that automates cryptocurrency investments. You can follow him on Twitter @TheRealBucci to read his “clever insights on the crypto industry.” His words, not ours. We received a significant number of search queries from people wondering, “can I short Bitcoin? ”, eager to consider a stake in the volatile and unpredictable world of Bitcoin’s price action.
Looking at the chart above and the trend-based fibonacci extension technical indicator, we can see that BTC’s price is currently hovering between the 0.382 and 0.5 levels. Bearish crypto traders may want to consider making use of these levels to determine their entry and exit when shorting BTC. Experienced and skilled crypto traders can make money on regular price drops and corrections during bull markets, too. With technical analysis of past price patterns, experienced traders can determine when a move to the downside looks more likely than appreciation. Crypto traders often use the terms “long” and “short” to describe positions in a market.
Shorting Bitcoin allows the investor to benefit from a falling Bitcoin price. Typically, there will be corrections, which could offer an astute trader a chance to make a profit as the asset advances and retraces. The latter ensures that you get to borrow the BTC at the exact time that you are opening the position. Borrowing funds in advance before you make the trade could increase the interest you pay on your loan, given that Binance charges an hourly rate on borrowed funds.
It’s also important to consider the mentality of other traders in the market. If you short Bitcoin, and suddenly the price starts to shoot up quickly, you will need to rush to repurchase your assets. Unfortunately, every other investor who made the same decision will seek to accomplish the same task.
While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, new platforms might start off “clunky” and be more susceptible to hacks. If the price goes up (instead of down, as you’d hoped), you could end up with significant losses. Hard forks occur when the community behind a crypto project is split on a certain upgrade.
Any descriptions of Crypto.com products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation. UpDown Options are fully collateralised, thus permitting traders to gain effective leverage in a trade without using margin (borrowing). However, with an infinite downside, shorting carries more risks than simple spot trading. Futures, options, and perpetual swap trades can be either long or short, and traders can use leverage to amplify their positions. We explain cryptocurrency futures, options, and perpetual swaps in greater detail in our dedicated guide. Although this might sound more complicated than simply buying BTC and hoping to sell it at a higher price, the exchange abstracts the process away from traders.
To accomplish a short, an investor borrows a certain amount of the stock they believe will decline in value. As soon as the investor receives these stocks, they sell them at the current market value. Once the price of the assets expenses and benefits: loans offered to workers drops, the investor then can buy the stocks back and return it to the lender.
