Everyone knows the traditional buy low, sell high method of investing in cryptocurrencies. But what if I told you there is one more, a super popular method that allows you to earn money on falling prices.
While shorting crypto like Bitcoin or other altcoins you no longer need to sell higher in order to profit. Quite the opposite – you are betting that the price of Bitcoin will fall.
You may find yourself in a situation where the price of Bitcoin is falling dangerously and you are afraid to invest. But you are confident that the price will continue to fall. And that’s where shorting comes on the scene.
In this article, you will find all the information needed on how to short crypto and how to make money from it. Let’s get started!
What is the meaning of shorting crypto
Shorting is a trading method based on selling an asset, like Bitcoin with the confidence to re-buy it later for a lower price. Traders are expecting the prices to go down, so they open a short position. The lower the price goes the more profit they make.
It is called “shorting” or “short position” because of its time length.
How to short crypto
First, you will need to choose a crypto coin you will want to short. Perform proper technical analysis of the market. The reasons for the sudden drop in the price of a cryptocurrency can be different. From a bad marketing move by the team of creators and bad reviews to the general economic situation.
The second step might be the hardest. You will need to open a margin account with an exchange. All major exchanges allow margin trades.
This may require some additional process even if you already have an account opened. This is because you are borrowing money after all.
You need to take a loan in the form of your chosen crypto in order to short. And sell it while the peak still persists.
Now, wait until the price declines and purchase the borrowed crypto coin back. The last step is to repay the exchange. The difference is your profit.
There is no time limit in which you have to repay the loan. But the longer you hold the position open the more in interest you will have to pay back. Usually shorting is done in a very short period of time, taking profits as fast as possible. Nowadays the majority of Crypto Exchanges allow users to open a margin account and make shorting really easy
Introduction to crypto Longing (Long positions)
The opposite of short positions is long positions or longing. However, this should not be confused with when you yourself buy a given cryptocurrency and hold it for a longer period of time. When opening a long position you are taking a loan in a form of your chosen crypto and selling it at a higher price. Paying back the initial loan. The difference between buying and selling price is the profit. Basically, you can’t wait too long to pay it back, or you will overpay more on interest. While if you buy crypto with your own money you can hold it as long as you wish.
Risks and Advantages of shorting crypto
As was stated before the biggest advantage of short-selling crypto is the ability to profit even in a bear market. It is a fast way to make a profit, your position can be open only for a matter of minutes, and you can take advantage of people’s skepticism and fear.
The market can only go two ways – up or down. While maintaining long positions combined with short positions allows you to make money however the market looks. And since we can observe that every market goes through cycles, not using crypto shorting is a waste of time. For example, we can observe a downward trend in cryptocurrencies for more than half a year. During this time, you can’t be making money on your long positions.
The biggest downside, however, as with any investment, is the possibility that things don’t work out the way you expected. The price of the asset can go up. Luckily even with margin trading, you can set stop-loss or take-profit. So even if the price moves in the other direction that you predicted you don’t have to lose your entire amount but only part of it.
Also, not all assets can be shorted. You are limited to exchange’s trading pairs and have to choose from the one available.
Risk also comes with the trading and margin fees. You should calculate it all through. Thus calculate by how many percent a given asset must fall in order for you to make a profit despite the fees. And consider whether this is a reasonable value and whether it is worth opening a short position.
Where to short crypto – choosing the right exchange
As already mentioned above, all the biggest crypto exchanges allow margin trades. If you have already an account open with one, you don’t need to open a separate one solely for short selling.
Binance
Binance is the biggest and leading cryptocurrency exchange. With the biggest list of margin trading pairs. If your favorite crypto is part of this list can be checked here.
Binance also allows really high leverage, up to 100x. An entry point for everyone who wants to go big.
Margin fees at Binance vary depending on the asset you choose to short-trade with. But the great news for existing Binance users is that you can choose to pay Binance fees with the native BNB token, saving you 5%.
KuCoin
KuCoin is more of an alternative crypto exchange, which offers a wide variety of low market cap tokens. Offering up to 100x leverage.
KuCoin margin fees vary depending on various criteria. This can be checked upon registration.
Conclusion
With these three I would end the list of great exchanges for shorting. Of course, there are more exchanges to choose from and I recommend doing your own simple research.
Crypto shorting is a great way to make money even in the falling crypto market. However, this is an advanced feature using a loan. However, shorting crypto can bring fairly high income if executed right. And every investor should short crypto and be able to make money under any market circumstances.