Once those futures contracts are available, hedge funds and other big investors are ready to pounce. Many financial watchers say Bitcoin is the best shorting opportunity ever. There is an opportunity in that volatility. One way to get in on the action is to buy Bitcoin and then hold on to it, waiting for it to increase in value.
When it reaches a price you feel comfortable with, you can then sell it and then pocket the profit. This was a more viable option many years ago, in the early days. Many Bitcoin millionaires were born in the early days. If you feel like you missed the boat with Bitcoin you can always invest in these other cryptocurrency alternatives to Bitcoin. What goes up must come down, and you can actually profit when any investment, including Bitcoin, drops in value.
Anybody can learn how to short sell Bitcoin to potentially profit. With the price of Bitcoin continuing to be relatively volatile and many analysts claiming that its recent meteoric rise is unsustainable and a crash is imminent, the urgency to start trading and learning how to short sell Bitcoin has never been more urgent. Another factor to consider is that world governments are closely scrutinizing Bitcoin exchanges and investments in the cryptocurrency. Due to its anonymous nature, authorities are concerned about the tax avoidance possibilities.
Want to short sell Bitcoin? You have a few options:. This is the simplest type of short selling Bitcoin: You sell off your existing Bitcoin at a price you are comfortable with. Your hope is that the value drops further; and then, if you so choose, you can buy Bitcoin again at a lower price. Many people start short selling Bitcoin by using a margin trading platform dedicated to cryptocurrencies. With this type of trading, you borrow money from a broker, make the trade, hoping that your bet pays off.
There are several Bitcoin exchanges that allow margin trading at this point, so you have plenty of options. You can also find ways to short sell Bitcoin in the futures market. You, as the buyer, agree to buy Bitcoin at a future date at a certain fixed price. That way, when your contract expires you can buy Bitcoin below the market price. With a put option contract, you have the right to sell a specified amount of Bitcoin, which you set, at a certain price at a certain time.
This is called the strike price. The put option gains value as Bitcoin loses value compared to this strike price. A call option contract gives you the right to buy shares in the same way. For years, in-the-know investors have been coming up with creative ways to profit by shorting Bitcoin.
That means you can make money by betting on its decline, which many bearish market watchers say is inevitable. You can benefit from even relatively small declines in value, as well as the more extreme fluctuations in Bitcoin's value. As with any investment, learning how to short sell Bitcoin is not a walk in the park.
It takes research and some willingness to take the risk. Need Help? Toll Free 1. Online trading has inherent risk due to system response and access times that may vary due to market conditions, system performance, and other factors. An investor should understand these and additional risks before trading. Carefully consider the investment objectives, risks, charges and expenses before investing. All investments involve risk and losses may exceed the principal invested.
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Sell off tokens at a price you are comfortable with, wait until the price drops, and then buy tokens again. Of course, if the price does not adjust as you expect, you could either lose money or lose Bitcoin assets in the process. Short-selling Bitcoin also incurs significant costs and risks. For example, you will need to pay custody or Bitcoin wallet fees to store the cryptocurrency until the trade occurs.
You will also have to bear the risk of Bitcoin's price volatility. If the price goes up instead of down, as you'd hoped , you could end up with significant losses. Certain exchanges also offer leverage for conducting such trades. Again, the downside to using leverage is that it could magnify gains or losses. A contract for differences CFD is a financial strategy that pays out money based on the price differences between the open and closing prices for settlement.
Bitcoin CFDs are similar to Bitcoin futures in that they are essentially bets on the cryptocurrency's price. Unlike Bitcoin futures, which have predetermined settlement dates , CFDs have a more flexible settlement tenure. Bitcoin CFDs also do not require physical delivery of the cryptocurrency. Therefore, you do not have to spend on custody charges.
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. Inverse exchange-traded products are bets that an underlying asset's price will decline.
They are similar to futures contracts and use them in conjunction with other derivatives to produce returns. Both products are not open to U. As with any strategy related to cryptocurrencies, shorting Bitcoin is accompanied by enormous risk.
Here are some things that you should consider while shorting Bitcoin:. By now, the jokes about Bitcoin's price volatility have gotten old. But they are still relevant. Most avenues to short Bitcoin depend on derivatives. These derivatives are based on Bitcoin pricing; fluctuations in the cryptocurrency's price have a domino effect on investor gains and losses. For example, Bitcoin futures mimic spot price changes, meaning they cannot be used as an effective hedge against an investment in actual Bitcoin.
Similarly, options trading in Bitcoin can also multiply losses due to the underlying cryptocurrency's price volatility. Price is just one of several risks you will have to evaluate while shorting the cryptocurrency. As compared to other, more established assets, Bitcoin is nascent. It has been around for only 13 years. Therefore, there isn't sufficient data or information for investors to make an educated decision about its workings or feasibility as an asset.
For example, several issues related to Bitcoin forks are still unresolved. While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, new platforms like prediction market Augur started off being "clunky" and are susceptible to hacks.
Though it claims to have global coverage, Bitcoin's regulatory status across geographies is still unclear. 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. As such, short sales are widely used by retail investors and professional trading firms, such as hedge funds.
Short selling stocks or cryptocurrencies is a common strategy for both short-term and long-term traders. The opposite of a short position is a long position , where a trader buys an asset in the hopes of selling it later at a higher price.
Typically, shorting will happen with borrowed funds, though not in all cases. However, shorting is also commonly done with borrowed funds. This is why shorting is closely related to margin trading , futures contracts , and other derivatives products. You put up the required collateral, borrow a specific amount of that asset, and immediately sell it. Your profit is the difference between where you initially sold and where you rebought.
Buy Bitcoin on Binance! There are a number of risks to consider when it comes to entering a short position. One of them is that, in theory, the potential loss on a short position is infinite. Countless professional traders have gone bankrupt over the years while being short a stock. How much is your potential loss when going long on the spot market?
Other than that, standard risk management principles apply to shorting. Protect your downside, use a stop-loss, think about position sizing , and make sure you understand the risks of liquidation. You could do so in a few different ways. Firstly, you could short Bitcoin and altcoins on the Binance Margin Trading platform:. You could also short Bitcoin and altcoins on Binance Futures:. This way, you can test how shorting works without risking real funds.
Options contracts can also be an excellent way to enter a short position. If you expect the price of Bitcoin to go down, you could buy put options. These give you the right, but not the obligation, to sell Bitcoin at a certain price. Be sure to read our options guide for iOS and Android to know all the required details before you start.
None of the coins has ever shown an increase without a fall, so a cryptocurrency trader needs to be able to short. It goes like this:. Go to the Risks of Shorting Bitcoin section to learn more about this. If everything goes according to plan, then you will be able to buy back the assets you borrowed at a lower price and make a hefty profit.
Unfortunately, things rarely go according to plan — and especially so in a market as volatile as crypto. The biggest downside of shorting is that there is technically no limit on how much money you can lose. When you short Bitcoin, you open a position. If a margin call is issued, then your broker or exchange will automatically buy back the assets you borrowed using the funds on your account. However, sometimes that is not possible — the market may not be open or the demand may far outweigh the supply — and in such cases, the buy-back price can even exceed your account balance, forcing you to become indebted to the exchange.
However, that happens very rarely. Still, make sure to always be careful and always monitor the market and the price of the asset you want to buy. As crypto became more popular, a wide variety of trading platforms fit for every kind of user has emerged. Here are the best platforms for shorting Bitcoin:. How you short Bitcoin will depend on several factors, including but not limited to your risk aversion, your available funds, your level of expertise, and so on.
Here are the 5 main ways in which you can short crypto. All you need to do is enable 2-factor authentication and pass KYC. Margin trading also allows you to use leverage — meaning you can borrow more money from an exchange than you have deposited on your account. Just like other assets, Bitcoin has a futures market. In a futures trade, you basically agree to buy an asset — in our case, BTC — on a condition that it will be sold later at a predetermined price.
This agreement is called a futures contract. Read more about the futures market here. To short sell cryptocurrency using this method, purchase put options. Binary options trading offers great flexibility and higher-than-usual leverage. Prediction markets are somewhat similar to betting agencies for sports.
If somebody takes you up on the bet, you can make quite a hefty profit. If you have enough of your own funds, you can also short sell Bitcoin directly. As always, the higher the risk, the higher the reward. Just like other trading practices, short selling requires you to be careful and informed. Shorting is a high risk, high reward activity. In fact, it is one of the riskiest ways to make money, since your profit is limited while your losses are not. There have been bans issued on short selling in the past, forcing traders to cover their positions at big losses.
If you know you have a hard time calling your losses, we would advise you against trying shorting. This is why shorting is closely related to margin trading , futures contracts , and other derivatives products. You put up the required collateral, borrow a specific amount of that asset, and immediately sell it. Your profit is the difference between where you initially sold and where you rebought.
Buy Bitcoin on Binance! There are a number of risks to consider when it comes to entering a short position. One of them is that, in theory, the potential loss on a short position is infinite. Countless professional traders have gone bankrupt over the years while being short a stock.
How much is your potential loss when going long on the spot market? Other than that, standard risk management principles apply to shorting. Protect your downside, use a stop-loss, think about position sizing , and make sure you understand the risks of liquidation.
You could do so in a few different ways. Firstly, you could short Bitcoin and altcoins on the Binance Margin Trading platform:. You could also short Bitcoin and altcoins on Binance Futures:. This way, you can test how shorting works without risking real funds.
Options contracts can also be an excellent way to enter a short position. If you expect the price of Bitcoin to go down, you could buy put options. These give you the right, but not the obligation, to sell Bitcoin at a certain price. Be sure to read our options guide for iOS and Android to know all the required details before you start. Are you still not sure on how to short Bitcoin and cryptocurrencies?
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