Bitcoin futures can be purchased or traded on popular exchanges like Kraken or BitMEX and can also be found at popular brokerages such as eToro. For example, if a trader buys bitcoins on the spot market and BTC’s price falls, this could lead to losses. To hedge against some of the potential loss, the trader can short Bitcoin via derivatives, as the short futures position would profit if the price of Bitcoin falls. It is worth noting that there are multiple ways to profit from negative price movements by Bitcoin and other cryptocurrencies, which we’ll discuss in more detail later in the article. But first, here’s a guide on how to short Bitcoin and other crypto assets using margin trading, which is the is bitcoin mining legal regulations from around the world most popular approach to shorting crypto. One of the easiest ways to short Bitcoin, margin trading allows you to use leverage, meaning you can borrow more money from the exchange than you have deposited in your account.
To execute your order automatically, select the [Borrow] tab within the ‘Sell’ panel. You will notice that now Binance indicates that we already have an available balance of ~$100 in BTC even though we transferred $10. This figure takes into account the amount of BTC that we are able to borrow – which is ten times what we have as margin. In this example, we are moving funds from the Fiat and Spot wallet to the BTC/USDT Isolated margin wallet. Ensure that the [Fiat and Spot] as well as the [Isolated Margin] wallet options are selected within the [From] and [To] form fields, respectively.
Best of all, most CFD brokers feature an advanced interface that is easy to navigate. Form here, you can stay up-to-date on all the market’s developments. Use one of our recommneded CFD Brokers that offer CFD trading services. Notably, you must verify your identity and account via an email before you can use the platform.
When you buy “long” on an asset, the maximum amount that you can lose is what you’ve invested because an asset can’t be worth less than $0. Bitcoin had just climbed from around $900 in January 2017 to an all-time high of over $20,000 in December 2017. Around the same time the following year, Bitcoin was hovering at around $4,000. The asset saw a 22x jump in 2017, and then an 80% fall the following year. Bitcoin’s price history is a rollercoaster, fueling both bulls and bears seeking to make a profit on the price jumps. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism.
Once you have opened and funded a margin account, you can borrow collateral and start trading. You will see some exchanges that offer more than that, but these should be reserved for experts only, as every additional point of leverage increases your risk. You use $1,000 USDT as collateral and leverage it 10x, short selling $10,000 worth of BTC. There are several brokerage platforms that lend Bitcoin to speculators who wish to short the asset or some which facilitate peer-to-peer lending and borrowing. Others simply deal in derivatives, thereby circumventing the need for their customers to trade in the actual underlying assets. Binary options trading is a relatively new way to short Bitcoin, and it can be a very risky proposition.
Short-Selling Bitcoin Assets
In this section, we will highlight the simplest of these methods and that is margin trading. We encourage you to research extensively and learn about all the available avenues before settling on whichever method you may find congruent with your trading strategy. 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. Some of the best cryptocurrency exchanges for shorting Bitcoin include Binance, Kraken, and KuCoin.
As we explain in the later section about shorting BTC on OKX, you don’t have to manually borrow the BTC, initiate its sale, and later return the borrowed BTC. Instead, the platform performs these steps for you, making the process of short-selling almost as simple as buying and selling spot BTC. A popular CFD trading strategy is what’s known as hedging – holding both long and short positions simultaneously. If you’re holding an open futures long position, you could short Bitcoin CFDs hedging your trade and mitigating risk. If the trade is managed correctly, one position will remain in profit regardless of market conditions. Short selling is a trading strategy where an investor borrows a crypto asset, sells it at the current price, and then buys it back later at a lower price to return it to the lender.
In the first scenario the short completed according to plan, the price of Bitcoin dropped and the investor repaid their debts to the lender. Now let’s see what would happen if the price of Bitcoin didn’t drop. We may receive compensation when you click on links to products we review. The purpose of this website is solely to display information regarding the products and services available on the Crypto.com App.
To short a cryptocurrency on Coinbase, you will need to open a futures contract. Futures contracts are agreements to buy or sell an asset at a specified price on a specified date. In the case of shorting, you would be agreeing to sell an asset at a specified price on a specified date. To understand shorting, let’s first look at the industry that created this method, stocks. In the stock market, short selling is a popular investment strategy.
How to short crypto on Binance?
Kraken offers over 100 margin-enabled markets for you to long or short cryptocurrencies with up to 5x leverage. In total, traders can short over 50 different cryptocurrencies on Kraken. Shorting crypto involves a series of steps that enable traders to profit from falling cryptocurrency prices. The process includes borrowing the cryptocurrency, selling it, waiting for the price to drop, and then buying it back at a lower cost. The difference between the selling and buying prices is the trader’s profit. Inverse exchange-traded products are instruments that use leverage and other techniques to flip the returns an underlying asset generates.
- We explain margin and leverage trading in more detail in a dedicated guide to the subject.
- To ensure that you fulfill your promise, these platforms require users to put up a deposit, or margin.
- Market volatility and risk management are the most important factors when taking any trade.
How to Short Bitcoin (BTC) – An Easy to Follow Guide
While the asset is different, shorting Bitcoin works in much the same manner. A crypto trader will borrow Bitcoin prior to a foreseen market drop. As soon as the investor receives their Bitcoin, the assets are sold.
What happens when you long BTC?
Investors often trade without stop losses as the chance of liquidation for a low-leverage position is decreased. Spot market trades can fall drastically, but without leverage, there is no chance of liquidation. On the flip side, shorting comes with risks that you, as an investor, need to consider before opening any trade. Always remember to employ appropriate risk and trade management strategies to mitigate any losses that may result from Bitcoin volatility. In this guide, we will discuss how to benefit from a falling cryptocurrency market by shorting Bitcoin. Specifically, you will learn how to short Bitcoin, why you would consider doing it, ways of shorting crypto, and some of the inherent risks you should pay attention to.
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. On the other hand, when a trader is short, they’ll enjoy gains if the asset’s price decreases. 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.
Additionally, in certain Bitcoin CFD markets, traders can enter into a contract based on Bitcoin’s performance or its performance relative to fiat currency or another crypto. Selling a put option means you have the right to make the purchaser buy the bitcoin, but not the obligation. Purchasing a call option gives you the right to buy a bitcoin at a specific price, but not the obligation.
In a hard fork, some of the miners refuse to change over to the new protocol. This creates two separate blockchains from the moment of the fork moving forward. Consequently, hard forks also create a rift in a coins support community. Each of these techniques provides its own advantages and disadvantages.