Can I Short Bitcoin? A Practical Guide
Can I short bitcoin? You have probably asked yourself this question when learning about the crypto market. We have got lots to tell you about this topic. Have a look at our guide that answers your questions!
What Is Shorting Bitcoin?
The first step is to properly understand what shorting bitcoin means. Essentially, shorting means benefiting from the price drops of an asset. You borrow bitcoin to sell on the market and later buy back at a lower price. Traders benefit from the difference in market price. Shorting is a useful trading tactic for when you’re expecting the price of Bitcoin to decrease.
How Can I Short Bitcoin?
Let’s use an example to illustrate this. Imagine that you believe the price of bitcoin will decrease in the next few days or weeks. Let’s say the price of bitcoin is €10,000 and you decide to short bitcoin. After a little while, the price decreases to €8,000. This means that you can buy at a lower price. So when you return the bitcoin, you profit from the difference in the price.
As you can see, shorting can be a very effective trading method. However, it involves a lot of speculation. So, it is crucial to consider the risks. Price of crypto assets might not actually decrease as you have guessed at the moment of shorting. You also need to account for the accompanying costs, such as interests, that shorting involves.
You can read more about managing risks from our post on how to short bitcoin!
I Am Ready To Start Shorting Bitcoin!
So, the process of short selling is quite straightforward. But as you can already tell, you need to borrow bitcoin for shorting. So, how can you do that?
There are actually several options you can choose from. You can short bitcoin by using an exchange, CFD, arbitrage or options market. The most popular option is using an exchange.
Shorting Crypto on an Exchange
So, how to short sell bitcoin via an exchange? Some cryptocurrency exchanges offer an investment method called margin trading. This means that you can borrow more money than you actually hold in the exchange. So, you can buy more coins and sell them to make more profits than you could make with your original balance.
This type of leverage multiplies your original funds by a defined ratio. But not all crypto exchanges offer this option. So, you have to do your research when looking to short sell via an exchange. Exchanges margin trading offers differ on a variety of factors. For instance, the maximum leverage that they offer, fees and trading terms.
CoinMetro offers a margin trading platform with 5x leverage. Trading indicators and other tools are integrated to the exchange. So, you can pick the indicators you wish to help you with trading.
When Should You Short Sell?
So, you know that shorting bitcoin is possible. You also know how to do it on an exchange. The remaining question is – how to time your trades?
When you’re shorting bitcoin, you are trading against a long-term uptrend. So, the longer the trend remains, the riskier it gets. Price movements are unpredictable. However, oftentimes the price increases slowly but drops fast. So, bullish moves take time to develop while bearish movements tend to be shorter.
The best way for timing your trades is to get acquainted with technical analysis. Studying price charts and having a better understanding of price movements prepares you for shorting. You will be better equipped for predicting bullish and bearish movements and timing your trades.
Now that you can answer the question “can I short bitcoin”, why not jump into practice? Head over to our crypto exchange to start short selling crypto assets!