Similar to CFD's and Futures contracts, traders do not need to purchase the real asset which makes Bitcoin options trading suitable for both beginners and experienced investors to hedge their portfolio.
The downside to trading options is the expensive fees during high volatility which is expected for Bitcoin. The easiest way to short Bitcoin is to sell the actual asset using a fiat-to-crypto exchange by converting BTC into traditional money. The individual has full control over the price to sell Bitcoin to cash and re-buy at a lower price to increase BTC holdings. The risk with selling the actual Bitcoin is missing out on a lower price and having to buy back at a higher Bitcoin price.
The aim behind shorting Bitcoin is to execute a sell order when the price is at an extreme high in order to buy it back at a lower price. This is opposite to the traditional investing concept of buy low and sell high which can be difficult to time in the market. During a bull market, a common strategy is to short sell Bitcoin at predetermined swing highs to reduce losses during corrections to the downside and protect their capital investment.
Bitcoin is a highly volatile asset class that can experience sudden price movements. The high volatility presents great opportunities for advanced traders to speculate on the future BTC price or small price changes to make profits.
Shorting Bitcoin is a good trading strategy for experience investors and professional traders. It is highly speculative that comes with certain risks that do not exist with the traditional buy and hold method using a Bitcoin hardware wallet.
Trading CFD's, Futures and derivatives involve leverage which creates the possibility for uncapped losses that can exceed deposited funds. Bitcoin is also a highly volatile asset class with sudden price movements both up and down that can result in forced-liquidations and margin calls. Shorting Bitcoin is recommended for experienced investors and professional traders with sound risk management principles.
The top Bitcoin trading exchanges offer a variety of financial products to enable users to short sell Bitcoin. For advanced crypto investors and professional traders, short selling Bitcoin can be a very profitable strategy to manage risk, profit during a downtrends or hedge against market volatility. However, speculating on the BTC price to enter a short position comes with significant risk and is not recommended for beginners that have a habit of entering trades as a result of FOMO or FUD.
Kevin is the founder and chief editor at HedgewithCrypto that he started in which has reached over 1. He is passionate about cryptocurrency as an emerging technology and is heavily involved in the fast-growing fintech space. An experienced trader growing his portfolio since , he has a strong understanding of investing in the crypto market using exchanges, brokers and derivatives platforms.
When shorting bitcoin, traders can use many types of analytical strategies. These strategies vary by type of analysis, time frame and risk appetite. However, a key decision traders make when they are starting out is if they are going to focus on technical or fundamental analysis strategies. Some traders utilise a blend of both, especially if both strategies suggest similar information. Traders who follow a strategy based upon technical analysis review historical BTC price charts by observing past trends and using technical indicators.
The MACD is used to decipher the strength and momentum of a trend whilst Bollinger Bands help to show if an instrument is overbought or oversold. Other technical analysis strategies for shorting bitcoin include trading based on support and resistance levels and trading on chart patterns.
Both strategies can work well and have their respective advantages and drawbacks. Support and resistance levels can be relatively easy to identify but are less prominent when a market is rapidly increasing or declining, whereas chart patterns can be hard to identify and may contradict each other.
However, chart patterns can be automatically identified with our pattern recognition scanner , complete with performance ratings to review past successes. Although the bitcoin market is relatively new and lacks the historical value of other assets, it is possible to apply fundamental analysis strategies to the cryptocurrency.
When using fundamental analysis strategies on bitcoin and other cryptocurrencies, traders could start with uncovering the driving forces behind its supply and demand. Variables that impact the demand of bitcoin include news, market sentiments, adoption, transactional activity and trading. Bitcoin halving involves the block reward from mining to be cut in half every 4 years, therefore slowing down the overall supply.
This might include the 1. Apply now. Practise trading risk-free with virtual funds on our Next Generation platform. Open a demo account. Since the price of bitcoin cannot fall below zero, there is a cap to how much profit can be made when shorting bitcoin, and the possibility of uncapped losses.
However, this is an extreme example and can be mitigated with a risk management conditions such as stop-losses. When the price of bitcoin is rapidly fluctuating, you can generate profit just as quickly as you can incur losses. At times when the market is particularly volatile without reason or prediction, it can be best to withdraw from making any trading decisions unless they follow your trading plan.
Read more here if you need help on creating a trading plan template. Tax law can change or may differ in a jurisdiction other than the UK. The material whether or not it states any opinions is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is or should be considered to be financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
What is ethereum? What are the risks? Cryptocurrency trading examples What are cryptocurrencies? The advance of cryptos. How do I fund my account? How do I place a trade? Do you offer a demo account? How can I switch accounts? Search for something. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Home Learn How to short bitcoin. Short selling bitcoin: a how-to guide Bitcoin BTC is an extremely volatile asset, characterised by unpredictable price swings and large price movements. What is shorting bitcoin? Can you short sell bitcoin?
Why should I short sell bitcoin? Many traders short-sell bitcoin for numerous reasons, including the following: Valuation. Investors who speculate that bitcoin is overvalued or exists in a price bubble may wait for a downward trend to start before shorting bitcoin. Traders who trade bitcoin based on valuation metrics predominantly follow a fundamental trading style, analysing the suspected intrinsic value of an asset against its market price.
Hedging risk. Some traders short assets to hedge the risk of their larger portfolio. For example, if you already hold bitcoin but you suspect it is due to fall in the short term, you may decide to open a position to short sell bitcoin. If you are correct, the profit from your short position can reduce or exceed your loss from your long position. Some traders that short bitcoin expect cryptocurrencies to be a short-term trend and hold bearish sentiments towards the bitcoin market.
These short-sellers tend to stay up to date with the latest bitcoin and blockchain advancements and not let opinions interfere with their objectivity. Evident from its history, the price of bitcoin can appreciate as quickly as it depreciates. Traders with a high-risk appetite are drawn to volatile assets that have the potential to reap huge rewards, or equally huge losses.
However, whilst some traders rely on luck, others utilise a structured approach based on experience and knowledge. Open an online trading account. Open a live spread betting or CFD trading account to get started.
The absence of regulatory oversight means that exchanges have been able to get away with offerings that would not be allowed if there were proper oversight. The lack of clarity about regulatory status means that legal recourse for customers of these exchanges is limited. Before you undertake a short position in Bitcoin, you should brush up on your knowledge of different order types. They can help limit losses if the price trajectory does not go in the direction that you bet initially.
For example, using stop-limit orders while trading derivatives can curtail your losses. You can short Bitcoin's volatile price by betting against it using derivatives like futures and options. However, it is important to consider the risks associated with shorting, of which there are many. The most common way to short Bitcoin is by shorting its derivatives like futures and options. For example, you can use put options to bet against the cryptocurrency's price.
Contract for differences CFD , in which you pocket the difference between an asset's actual price and your expected price, is another way in which you can short Bitcoin pricing. Prediction markets are another avenue for shorting Bitcoin. There are two main risks to shorting Bitcoin.
The first one is price risk. Price volatility in the underlying asset can make it difficult to accurately predict the price movement of the underlying asset. The second main risk is the absence of a standard regulatory framework for Bitcoin around the world. Some of the biggest futures trading venues of the cryptocurrency are not regulated. This means that investors have fewer recourse options if something goes wrong with their trade. Many cryptocurrency exchanges like Binance and futures trading platforms allow the use of leverage or borrowed money to place bets on a fall in Bitcoin's price.
Bear in mind, however, that leverage use can magnify gains and losses. Therefore, the risk when using leverage is proportionally greater. Accessed August 2, New York Times. Deribit Restricted Countries. The Block. Stock Trading. Your Money.
Personal Finance. Your Practice. Popular Courses. Cryptocurrency Bitcoin. Table of Contents Expand. Table of Contents. Margin Trading. Futures Market. Binary Options Trading. Prediction Markets. Short-Selling Bitcoin Assets. Using Bitcoin CFDs. Using Inverse Exchange-Traded Products. Factors to Consider While Shorting Bitcoin. Shorting Bitcoin FAQs. Key Takeaways Many investing options are available for those looking to short Bitcoin—i. Derivatives such as options or futures can give you short exposure, as can margin facilities available on certain crypto exchanges.
The price of Bitcoin is volatile and prone to sudden increases or decreases. Selling short is risky in any asset, but it can be particularly dangerous in unregulated crypto markets. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Related Articles. Bitcoin Crypto Futures. Bitcoin How to Buy Bitcoin. Partner Links. Short Selling Short selling occurs when an investor borrows a security, sells it on the open market, and expects to buy it back later for less money. What Is a Call Option? A call option is a contract that gives the option buyer the right to buy an underlying asset at a specified price within a specific time period.
What Is Spread Betting? Spread betting refers to speculating on the direction of a financial market without actually owning the underlying security. Investopedia is part of the Dotdash Meredith publishing family. In this guide, we'll go over the 6 different ways of shorting bitcoin, and other cryptocurrencies, while exploring some of the possible risks involved. Shorting is a financial strategy that allows traders to benefit from the downward trending prices of an asset.
The objective of shorting is similar to general trading: buying low and selling high, but in reverse order. When a trader believes that the price of Bitcoin will go down, they will borrow Bitcoin and sell it now to buy back and repay their lender at a later stage, once the price has gone down. After this trade, you have made a profit of 2.
For anyone already registered and verified on some of the bigger cryptocurrency exchange platforms, margin trading will be one of the easiest ways to short bitcoin. When trading on margin, traders actually borrow funds from the exchange and use that money towards leveraging their positions. Multiplying your exposure to the market allows small market movements to potentially turn into big profits or losses. With margin trading, you have the ability to trade in both directions, long or short and on some exchanges, like BitMEX or Deribit, you have the ability to speculate on price using up to x leverage.
If you're in such a location and still want to short bitcoin with a bit of leverage, you can try leveraged tokens. The convenience when trading leveraged tokens is you can just buy and HODL them as you would any other crypto asset. It's important to note that margin trading amplifies gains but can also lead to losses above the initially deployed capital. So any margin position has to be monitored closely.
Options are a type of financial contract that is split into types: calls and puts. When buying an option, traders bet on the price of bitcoin at some later date. Bitcoin call options - buying a call option means you are expecting that the price of bitcoin will increase in value over the period of the contract usually 3 months. This allows you to buy an agreed-upon quantity of bitcoin at the strike price the set price at which a contract can be bought or sold when it is exercised when the option expires.
Bitcoin put options - buying a put option means you are expecting the price of bitcoin to go down over time. If the strike price at the end of the contract is higher than the current market price, you turn a profit. When picking a platform, consider the premium, which is a price paid by holders of the option calculated based on factors such as volatility, expiry, and spread between the current and the strike price the price you can buy the asset at.
Overall, Options are complex financial instruments and not recommended for inexperienced traders. One benefit is that, when buying options, the maximum amount of money you can lose is the cost of the option premium. Trading futures is an easy way to speculate on the price direction of bitcoin at a specific time in the future.
When taking a long position, you agree to buy bitcoin at a specified price once the futures contract expires. You profit when the price of BTC is higher than the contract price. Short positions are the inverse of this, profiting only when BTC is lower than the contract price. Traditionally, futures contracts have particular dates at which trades have to be settled. However, in the world of crypto, one type of future runs without an expiry date - the so-called perpetual futures , or short perps for short.
With the volatility in crypto markets, it can be advantageous to trade a futures contract without an expiry date, where the counterparties hold their trade as long as they want to. The only costs you incur are the funding costs. Some exchanges will also allow you to leverage their perpetual futures, increasing potential profits and losses.
CFD is an acronym for contract for difference.