If you want to know, “can I short Bitcoin?” then you first need to understand the concept of shorting. When you step into the crypto space for the first time you may across various terms and features. As a beginner it is crucial that you do not opt for anything new or unknown unless you properly educate yourself about it. Shorting is one such term or concept that requires the interested parties to get proper understanding before they opt for it.
If you are also intrigued by Bitcoin shorting then you should know the details mentioned below. To make sure that you have the best experience of stepping into the crypto space it is important to know as much as possible about shorting.
Here is what you need to know.
Can I Short Bitcoin – What is Shorting
Short selling is an investment style. It is for the crypto investors who do not believe in the long-term price stability of a digital asset, which is Bitcoin in this case. When the investors expect the cryptocurrency to crash in the future, they opt for short selling.
This investment style allows people to make money when the price of a crypto asset drops. Since the crypto space is quite volatile the prices of cryptocurrencies such as Bitcoin fluctuate a lot. This offers a lot of opportunities for the people to both long and short the crypto king.
However, Bitcoin shorting may not be as simple and easy as you might think. You need to know several aspects and details that can make it easier for you to determine if this is what you should opt for or not.
Therefore, if you are interested in shorting selling BTC make sure you take a look at the information mentioned below.
Know How Shorting Works
Can I short Bitcoin is a question you should be asking once you have a basic idea of what the investment style is and how it works. To simply explain shorting, it is a process where you are allowed to borrow an asset or financial instrument, which is Bitcoin in this case.
After borrowing the asset you can then sell it at the current price. With the help of perpetual futures contracts you can then pay back the person you borrowed BTC from. The date and time for the payback can be determined later. A perpetual futures contract or perpetual swap contract is a virtual derivative product that is settled in crypto tokens such as BTC.
In order to pay the person without completely draining your funds, the trade needs to be profitable. It can be profitable if the price of Bitcoin drops after you short it.
Example of Shorting
The concept of Bitcoin shorting is undoubtedly complex but it can be understood more clearly if you consider an example.
Let’s suppose that the price of Bitcoin is $18k and you short 2 BTC. This means you will be selling the 2 BTC at $36k.
Now let’s consider that the price of the crypto king dropped to $17k and you close your position. This can be done if you repurchase the 2 BTC you borrowed at a lower price (multiplying $17k by 2 to get $34k).
Considering this calculation, the profit you will get is $2,000 (subtracting $36k and $34k).
Risks of Short Selling
If you want to know “can I short Bitcoin?” then you should also know the possible risks you will be facing if you opt for the investment style. Short selling any cryptocurrency is a high-risk venture and the risks increase even more due to the price volatility seen for digital assets including Bitcoin.
If you invest in a cryptocurrency and its price drops you will only lose as much as you invest. However, the loss can be beyond what you invest depending on the shorting ratio that is being applied.
Learning Risk Management
Bitcoin shorting can be less challenging or intimidating if you know how to manage the risks you may possibly come across. Therefore, you need to know how new parties who opt for short selling can manage and limit their risks.
One of the ways to manage your risks is to use a stop-loss function. This would result in a sure cut-off point in case your trade does not go well for you. This limits the loss you may face as a novice short seller.
Easy Steps to Short Sell BTC
If you want to know “can I short Bitcoin?” then you should know the three easy steps to follow.
- Choose a suitable exchange that supports short selling. Sign up and deposit your Bitcoin.
- Look for a good Bitcoin shorting opportunity.
- Execute your order.
Final Takeaways!
There are numerous aspects and details you need to know if you inquire, “can I short Bitcoin?”. Since it is a risky venture you should know the details mentioned above before you dive into it.
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