Shorting, or short selling, is a form of trading where an investor seeks to make a profit when the value of an asset, such as Bitcoin, falls. Shorting crypto is an exciting, although risky strategy capable of generating profits. This guide will explain how to short cryptocurrency on leading exchanges including Binance, Coinbase and Kraken.
Crypto Shorting Brokers
Binance
Binance is one of the leading online crypto exchanges offering Bitcoin.
Coinbase
Coinbase is the easiest place to buy, sell, and manage your cryptocurrency portfolio.
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Kraken
Kraken is a top-rated cryptocurrency trading exchange offering the largest tokens and altcoins by market cap.
Robinhood
Robinhood have pioneered mobile trading in the US. Their offer attempts to provide the cheapest share trading anywhere.
Webull
Webull offers a popular online stock trading app with low fees and generous bonuses.
Bitfinex
Bitfinex is among the best crypto exchanges for experienced investors with a free mobile trading application and low fees.
Interactive Brokers
IB Boast a huge market share of global trading. With a minimum deposit of $10,000 however, they remain an option for larger traders only.
What Is Crypto Shorting?
To open a short position, a trader borrows a cryptocurrency and sells it on an exchange at the current price. The trader then buys the digital currency at a later date and repays the capital borrowed. If the price of the coin has dropped, the trader will make a profit on the difference between the cost of buying and selling.
Let’s look at an example:
You want to short one Bitcoin when the market value of Bitcoin is £40,000. Therefore, you borrow one Bitcoin and sell it at market value, earning £40,000
The price of one Bitcoin drops to £30,000
You buy one Bitcoin for £30,000 and return it to the broker you borrowed it from plus any interest
You keep the difference between the sale and purchase price, meaning £40,000 – £30,000 = £10,000 (minus any interest)
Shorting crypto is the opposite of going long – a trader should short when they expect a currency to decrease in value, and go long when they expect the coin to increase in value.
Shorting or longing is different from pump and dump schemes, where a group of investors artificially raise the price of a currency and sell it when it’s high.
The easiest way to short cryptocurrencies is through a margin trading platform. Margin trading allows an investor to borrow capital from a broker which could either increase your gains or losses. Some margin trading platforms also allow you to short cryptocurrencies with futures contracts, where you agree to sell or buy an asset for a set price, on a fixed date.
Although the potential for gains shorting a volatile market like crypto is real, the level of risk is much higher. In a typical long position, the currency can only ever drop to zero – in which case you lose your original investment. In a short position, the price of Bitcoin for example has the potential to rise infinitely – and so do your losses.
Pros Of Shorting Crypto
Short selling is an advanced strategy that should only be undertaken by experienced investors. However, get it right and there are multiple benefits:
High-profit potential
Limited capital required
Multiple margin trading platforms
Cons Of Shorting Crypto
Downsides of shorting cryptocurrencies include:
Unlimited losses
Margin interest
Short squeezes
How To Start Shorting Cryptos
If you’re interested in shorting cryptos, follow our step-by-step guide:
Find a trend – The cryptocurrency market is extremely volatile and can be influenced by any number of factors. Developments in news, politics or even celebrity culture can all influence the value of popular cryptocurrencies. Make sure you carry out careful analysis of the asset you want to start shorting, be it Bitcoin, Ethereum, Ripple or another.
Open a margin trading account – Most of the top crypto brokers offer short selling capabilities with leverage, including Binance, Coinbase, eToro and Kraken. However, regardless of whether you’re from Canada, India, Europe or elsewhere, it’s important to adhere to regulations in your country. For example, investors in the UK can no longer trade derivatives on cryptocurrencies.
Minimise your risk– The digital currency market is turbulent and losses on short positions can grow exponentially. Make use of stop losses and take profit levels in your trading platform to limit your exposure. Many brokers also offer useful crypto shorting calculators.
Open your position – Once you have determined your entry and exit points, go short and sell the cryptocurrency that you’re interested in.
Shorting Crypto On Binance
If you want to short Bitcoin or other cryptocurrencies on Binance, you have a couple of options:
Margin trading – Once you have opened a live account, head to the dashboard, select ‘Margin’ and complete the necessary identification checks. Next, load your account with funds, then navigate to the margin trading platform and open a position on the crypto that you’re interested in.
Futures & options– You can also short cryptocurrencies using futures and options contracts, including perpetual and quarterly futures. Download the broker’s mobile app for iOS or Android to start short selling on your phone. Ensure you have enough funds in your wallet before you start trading.
Shorting Crypto On Coinbase
Coinbase is a US-headquartered company and one of the most popular crypto exchanges worldwide. Margin trading is no longer available on Coinbase but you can start short selling without leverage using futures contracts. So once you have signed up for an account, identify a downward trend on one of the dozens of coins available and then take your position.
Shorting Crypto On Kraken
Kraken is one of the biggest Bitcoin exchanges in the US. Margin trading is available so once you have completed the KYC checks, take advantage of the range of leverage options.
To open a short position:
Select sell order
Select limit order
Select 2x leverage (necessary to go short)
Check the current price
Select your position size
Set the sell price
Confirm
And for the exit:
Select buy order
Select limit order
Select 2x leverage
Select your position size
Set the buy price
Confirm
Final Word On Shorting Cryptos
Shorting crypto like Bitcoin can be an effective trading strategy. Implemented correctly, experienced traders can take advantage of the volatile digital currency market. And with increasing government regulations and a host of new tokens emerging all the time, prices are constantly rising and falling.
With that said, beginners should avoid shorting strategies due to the increased risks. See our guide to trading cryptocurrenciesfor more ideas, including day trading and ETFs.
FAQ
What Does Shorting In Crypto Mean?
Shorting crypto means borrowing an amount of digital currency from a broker and selling it at market value. Once the value of the crypto has fallen, the trader then buys it and returns the borrowed amount, plus any interest, to the broker. The profit is the difference between the cost of buying and selling the crypto.
Is Shorting Bitcoin A Good Idea?
The crypto market is highly volatile and the profit potential in short positions can be appealing. However, short selling is also risky and traders can lose more than their original deposit. As a result, short selling is best suited to experienced investors.
Is Shorting Bitcoin Halal?
Shorting cryptocurrencies like Bitcoin Cash is usually considered Haram because it involves the selling of something that is borrowed. However, it may be worth consulting your religious leader for guidance.
Where Can I Short Crypto?
There are several crypto platforms on which margin, futures and options contracts can be traded. Some of the best include Binance, Robinhood, Coinbase, Kraken, eToro,Webull, Bitfinex, Interactive Brokers, Cryptohopper and Kucoin.
Is Shorting Crypto Illegal?
In traditional financial institutions short selling is highly regulated. However, crypto trading is unregulated in many jurisdictions, including the US, Canada, Australia, Europe and India. Traders should be wary of cryptos being hyped on social media as this could be a deceptive pump and dump scheme. Note, trading crypto with CFDs or other derivatives is no longer possible in the UK.
Shorting is the practice of borrowing bitcoin to sell on the market, then buy back at a lower price. Traders do so in the hope of profiting from the difference in price. Traders short bitcoin for speculative and hedging purposes. There are a variety of ways to short bitcoin.
Conclusion – Should You Short Bitcoin? Shorting Bitcoin is a useful but risky way to make money. Through the act of borrowing Bitcoins and selling them when the price is high, then buying them back when the price is low, you can earn money even when markets are bleeding.
'Shorting' means anticipating a decline in value of a traded asset. Traders can short crypto, but the market's volatility and lack of regulation make it particularly risky. There are a few ways to short crypto, if you have the appetite and capacity for risk.
One of the easiest ways to short Bitcoin is through a cryptocurrency margin trading platform. Many exchanges and brokerages allow this type of trading, with margin trades allowing for investors to "borrow" money from a broker in order to make a trade.
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.
These can be used to trade Bitcoin, and Bitcoin futures contracts have been around for several years now. Using futures, a trader can short Bitcoin by buying a contract with a lower Bitcoin price at some point in the future. Again, this would help an investor profit if they were anticipating a fall in Bitcoin's price.
Contents. Shorting, or short selling, is a form of trading where an investor seeks to make a profit when the value of an asset, such as Bitcoin, falls. Shorting crypto is an exciting, although risky strategy capable of generating profits.
If you still think it has long-term value, hang on to it. Panic-selling is a decision that many crypto investors later regret. They buy when a cryptocurrency is at a high, sell when the price plummets, and then miss out if the price bounces back.
It's practically impossible to predict a short squeeze every single time accurately, but by tracking heavily shorted assets, traders can quickly respond when one occurs. In these scenarios, holdings can also be traded like momentum assets, but it's imperative to start small due to the highly volatile environment.
In short, the price of a cryptocurrency technically cant reach zero, but the trading volume can. For the price of a cryptocurrency to go to zero would mean it passed on to somebody else without receiving any value in return.
You can go long or short on any cryptocurrency exchange or trading platform. You can open long and short positions on any cryptocurrency exchange that provides spot or derivatives trading services. Traders usually opt for well-established platforms such as Coinbase or Binance, among others.
However, most traders target at least 50% before they take profits. That being said, you can target 100% profits too before you decide to take. You can even target higher percentages. It really depends on how much risk you're comfortable dealing with.
According to experienced analysts, trading is best between midnight and 1 p.m. during the UTC zone. During this time, you are advised to open intraday transactions. Are early risers at an advantage? The volatility of Bitcoin can spike sharply in specific periods, which is an exciting trend in the trading world.
One of the best times for taking profits in crypto is when you spot the formation of a bearish chart pattern. Death crosses, head and shoulders, shooting stars and other bearish patterns often signal trend reversals, and should be incorporated into any crypto profit-taking strategy.
If you're a crypto beginner who can only invest about $100 into crypto trading, the best leverage for you is about 100 times your investment. However, if you're a crypto beginner who can invest about $500 into crypto trading, the best leverage for you is around 50 times your investment.
By investing roughly $1000 while monitoring a 10% increase solely on a single combination, it is possible to earn $100 every day in bitcoin. When contrasted to spending $200 and then monitoring a 50% increase on the pairing, this strategy is more reasonable.
However, with so many crypto projects in the market, it can be hard to make a definitive decision. This guide will reveal the next cryptocurrency to explode in 2023. ... 4. RobotEra (TARO) - Top P2E Crypto in Newly Launched Presale.
Nonetheless, day trading can be another way to make money with cryptocurrency, just like it is with stocks or other securities. Day traders buy and sell assets within the same day, in order to try and score a quick profit.
It occurs when a security has a significant amount of short sellers, meaning lots of investors are betting on its price falling. The short squeeze begins when the price jumps higher unexpectedly and gains momentum as a significant measure of the short sellers decide to cut losses and exit their positions.
Short-term capital gains tax: If you've held your cryptocurrency for less than a year, your disposals will be subject to short-term capital gains tax. For tax purposes, this is treated the same as ordinary income and can range from 10% - 37% depending on your income level.
In a long position, traders assume that the asset price will rise from a current point. Thus, the trader chooses to “go long” and buys the coins. At the same time, in a short position, the trader thinks the price will now start falling and “goes short”, selling the digital assets.
Eventually, the seller will have to buy back shares. If the stock's price has dropped, the short seller makes money due to the difference between the price of the stock sold on margin and the reduced stock price paid later.
A short seller, who profits by buying the shares to cover her short position at lower prices than the selling prices, can drive the price of a stock lower by selling short a larger number of shares.
What happens after a Short squeeze? As a trader, if you buy a company A for $10 per share, the maximum loss you can make is 100% loss of your money. This is because a company's shares can never be a negative. However, if you go short a company, the maximum loss you can make is infinity.
Hold crypto long-term. If you hold a crypto investment for at least one year before selling, your gains qualify for the preferential long-term capital gains rate.
As long as you are holding cryptocurrency as an investment and it isn't earning any income, you generally don't owe taxes on cryptocurrency until you sell. You can avoid taxes altogether by not selling any in a given tax year.
Can You Cash Out Bitcoins Tax-free in the U.S.? Some people can cash out Bitcoins tax-free in the U.S. Investors who do not exceed a $78,570 income can cash out at a 0% capital gains tax rate. You can also avoid taxes by investing Bitcoin in strategic investment accounts or modifying your citizenship.
BEAR, the 3X Short Bitcoin Token, represents a Bitcoin short position with 3x leverage. BEAR tokens are created to track BTC movements by -3x. If BTC increases 1%, BEAR is expected to decrease by 3%. If BTC decreases by 1%, BEAR is expected to increase by 3%.
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