How to short Bitcoin: a step-by-step guide to short-selling BTC

Maintaining a diversified portfolio by including different assets and strategies can also help reduce risk and improve your chances of success. Leverage in crypto trading should be used with caution due to its amplified risk. The crypto market is highly volatile and the profit potential in short positions can be appealing. However, short selling is also risky and traders can lose more than their original deposit. Leveraged trading providers offer products such as CFDs (contacts for difference) and spread betting. Unlike exchanges where you borrow the cryptocurrency, with leveraged trading products how to build an onboarding process for new software developers you do not own the underlying asset.

Step 2: Deposit the required collateral to initiate a short position

This contract states at which point and at what price the security will be sold. Buyers of such contracts normally believe that the value of the security will rise, however, those who believe otherwise can also choose to sell futures. You can short sell Bitcoin futures on several advanced platforms, including Kraken, and Plus500. Unlike the normal (long position) trade, where a trader’s losses are capped at the zero level, losses from short positions can technically balloon infinitely. This is because the price of an asset (in this case, Bitcoin) can keep rising and never return back to break-even levels.

Futures Contracts

With both technical indicators being aligned, bearish crypto traders might argue that we’re due for a short-term pullback before the eventual rally post Bitcoin halving. Therefore, experienced crypto traders may wish to take advantage of this brief correction by shorting Bitcoin with a tight stop-loss to prevent their account from being strongly impacted. As mentioned, exchanges like OKX make shorting cryptocurrencies very straightforward. Traders don’t need to concern themselves with the borrowing and repaying of assets, as the exchange abstracts the short-selling process and facilitates it for them. Whether or not you’re allowed to keep your short trade open until your losses reach such high figures depends on the amount of margin power your account balance can command.

When you buy a put option, you’re buying the right to sell a cryptocurrency at a set price before the option expires. If you think the crypto price will go down, you can use a put option to lock in a higher sell price now. However, if the market had risen instead, up to $4750, you would have to buy a bitcoin at the new market price and incur a $750 loss on the CFD trade. Shorting cryptocurrencies like Bitcoin Cash is usually considered Haram because it involves the selling of something that is borrowed.

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.

What Does Short Selling Bitcoin Involve?

Instead, the platform performs these steps for you, making the process of short-selling almost as simple as buying and selling spot BTC. To achieve this, they usually borrow the asset and immediately sell it for the current market price. If the asset’s price decreases, they can close their position by repurchasing — known as covering the short — and returning it to the lender. Let’s say you use leverage to short-sell, and the price moves against you, your losses can exceed your initial investment. This shows why understanding how to short crypto requires careful consideration of both the potential rewards and the risks, especially in a market as unpredictable as crypto.

Should you short BTC: using simple moving average

Inverse ETFs are designed to profit from a decline in the value of an underlying benchmark or index, in this case, Bitcoin. These ETFs are structured to move in the opposite direction of Bitcoin’s price. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

The high volatility of Bitcoin can lead to significant losses, especially if the market moves against your position. 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. This guide is only simplistic in outlining the concept of shorting Bitcoin. The entire process is more complex than this, hence, we highly advise you to watch an explanatory video below as well. However, if that asset is borrowed at a higher price and returned at a lower price, you get to keep the difference, which would be considered a profit.

CoinCentral’s owners, writers, and/or guest post authors may or may not have a vested interest in any of the above projects and businesses. None of the content on CoinCentral is investment advice nor is it a replacement for advice from a certified financial planner. 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.

• Maintaining a diversified portfolio by including different assets and strategies can also help reduce risk and improve your chances of success.
• Buyers of such contracts normally believe that the value of the security will rise, however, those who believe otherwise can also choose to sell futures.
• Implemented correctly, experienced traders can take advantage of the volatile digital currency market.
• Essentially, these tokens make it possible to gain more from price changes than you would with regular trading.

Under « Assets, » select « Start demo trading » to enter a few test positions to see how they perform. You can later move to real markets when you feel comfortable with your knowledge and skills. Futures, options, and perpetual swap trades can be either how to buy tzero stock 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. This is ultimately what scares off beginners because the losses can outweigh the amount of funds in a trader’s portfolio.

In the United States, you can short crypto by registering and verifying your account on exchanges like Coinbase, Kraken, and others that comply with US regulations. CFDs (contracts for differences) are a electronic trading and blockchain yesterday today and tomorrow 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. This article will guide you through the process of shorting Bitcoin and other cryptocurrencies, offering insights into how it works and where you can execute these trades. As with any strategy related to cryptocurrencies, shorting Bitcoin involves enormous risk. Cryptocurrency OTC desks play an essential role in facilitating large cryptocurrency trades in the global crypto markets.