To profit from this knowledge, you borrow 1 BTC from an exchange and sell it for $60,000. A week later, just as you predicted, Bitcoin drops to $40,000 — and you promptly buy back that 1 BTC you borrowed, thus getting $20,000 of profit. With UpDown Options, users can choose to buy or sell a contract depending on which way they think Bitcoin will go. If they think Bitcoin’s price will rise, they can buy a contract to open a long position. If they think the price will decrease, they can sell a contract to open a short position.
Step 3: select the product with which you want to short BTC
Shorting is especially risky if the lender calls in the assets before prices have a chance to drop. There are some techniques you can employ to simplify the process, however, none are full proof. It takes a firm understanding of the market conditions and your investment. Additionally, you really need impeccable timing to be successful with this strategy. If the exchange feels as if your investments are going to sour, they will close your trade early, keep your margin, and make you repay your loan. There are many exchanges in the market today that offer shorting services.
- Instead, the platform performs these steps for you, making the process of short-selling almost as simple as buying and selling spot BTC.
- From this neutral RSI status, some bearish crypto traders might assume that the crypto market is cautiously optimistic about BTC’s continued rally.
- Inverse exchange-traded products are instruments that use leverage and other techniques to flip the returns an underlying asset generates.
- Spot market trades can fall drastically, but without leverage, there is no chance of liquidation.
How to Identify Bitcoin Trends and Potential Shorting Opportunities
Similarly, the upside potential on a spot long position is technically infinite. Presume in the example above that you held your 0.1 BTC for a few years. We’ll also consider the main risks of shorting BTC when compared to taking a long position. With no ceiling on theoretical losses and with gains capped, shorting at the wrong moment can have catastrophic consequences for your portfolio.
Market Overview
The best crypto trading platform for short selling typically offers comprehensive tools, robust security, and user-friendly interfaces. Binance and Kraken are often recommended due to their extensive features, including margin trading accounts and support for Bitcoin futures trading. These platforms also provide advanced risk management strategies to help traders navigate the volatile price movements of underlying assets like Bitcoin. One of the best ways to short sell Bitcoin involves using Bitcoin futures trading on reputable cryptocurrency exchanges such as Binance or Kraken.
Most of these platforms allow you to leverage your shorting strategy. Leveraged shorting is the act of borrowing more Bitcoin from the exchange than you hold prior to your sell-off. Jeremy can sell this Bitcoin and keep the $10,000, or he can use his earnings to make other investments. Had he not shorted the market, he would only show losses in his portfolio. Even if he had traded his assets out to stable coins, he would only make the difference in price from his original holdings and the value drop.
While this is common across crypto futures markets, leveraged trading is considered high risk and not recommended for beginners. Shorting Bitcoin is a viable option for traders comfortable with the risks. Several exchange-traded products and strategies are available for shorting Bitcoin. Before you begin, it helps to learn about order types and to practice your strategies.
This is typically the case days prior to a major catalyst, as crypto traders lock in their gains before a volatile event like the Bitcoin halving. 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. When trading futures, a trader must buy or sell the underlying asset at the specified expiry date. Options, by contrast, give the trader the right, but not the obligation — hence, the option — to buy or sell the asset at the expiry date.
In addition, there is a detailed step-by-step guide to shorting Bitcoin on the Binance exchange. George is a cryptocurrency analyst and investor with extensive knowledge of crypto markets, having first gotten involved with the industry just before the “ICO craze” of 2017. He regularly puts his fundamental and technical analysis knowledge to use to both identify promising investment opportunities and warn against potential market drawdowns. While his portfolio includes crypto staples like BTC and ETH, he is not afraid to pursue riskier investments in various altcoin projects. Next, select the BTC/USDT trading pair and sell the borrowed cryptocurrency.
To short-sell Bitcoin, you’ll need a trading account and a clearly mapped-out trading strategy. The Bitcoin futures market allows counterparties to get into settlement contracts in which either party will buy or sell the asset at a predetermined date and for a specific price. The parties have an obligation to settle the contract according to the terms agreed upon.
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. A trader looking to short Bitcoin will ideally take the sell side of the futures contract and agree to sell BTC to the buyer at a certain price. If they anticipate the price of Bitcoin to fall below that set level, they will buy the asset at the market on the settlement date and time and sell it at a higher price. If they are wrong, they will be forced to buy BTC at the market price, which is higher than the settlement price, theory making a loss. For example, Bitcoin futures mimic spot price changes, meaning they cannot be used as an effective hedge against an investment in actual Bitcoin.
Shorting with futures on the Crypto.com Exchange, for example, involves similar steps to margin trading shown above. When you short BTC or any other cryptocurrency, an exchange will perform the necessary steps behind the scenes on your behalf. However, it’s important to know these steps and the process for you to understand how shorting BTC works. Many exchanges offer demo trading accounts to help you understand the fundamentals before trading using your capital. Market volatility and risk management are the most important factors when taking any trade. Only open a position with an exit callable preferred stock definition strategy or stop loss set at an amount you’re willing to risk.
In a futures trade, you essentially agree to buy crypto online — in our case, BTC — on the condition that it will be sold later at a predetermined price. The short seller covers the position by buying the asset back sometime later, and if it is at a lower price than what they initially sold it for, they pocket the difference. In essence, short sellers are betting that the value of the asset will fall, enabling them to repurchase it at a lower price later on.