Cryptocurrency and short-selling of bitcoin is the best approach to make money. Trading bitcoin is a way to make a profit but a highly changeable asset. There are many different ways to make a profit. Short-selling of bitcoin is another option to make a profit. But how to short bitcoin? This article guides you step by step on how to short bitcoin?
But before we start to discuss how to short bitcoin? It is essential to acknowledge what shorting bitcoin is? The process of selling cryptocurrency with the hope when falling the value to repurchase it at a lower price.
Many traders earn profit by the market price. It is an investment technique to gain profit over a price drop in digital currency in simple words.
Crypto traders find that apart from simply trading bitcoin and investing, there are several other ways to earn profit. Another way to earn money is known as shorting bitcoin. It is the best opportunity for crypto traders to gain profit. Let’s talk about what short-selling means in crypto?
What Does Shorting Mean in Crypto?
It is a trading market strategy. The process in which you buy stocks and securities when their price declines. It follows an old trading strategy to buy low and sell high.
In short selling, the investor believes that the value of the stock or other asset decreases. Shorting is very common in the cryptocurrency market for long and short-term profit gain.
Shorting work authorizes you to borrow stock assets such as Litecoin. Later you sell it at the current price. After the decrease in the value of cryptocurrency, the trader buys it at a low price and repays the borrowed amount. The benefit of shorting is earning trader income. let discuss How to make money with bitcoin drop
Suppose you short sell 10 bitcoin when its price is $ 4.000 it means you borrow 10 bitcoin and sell them for $40.000. After a particular situation, the price drops to $3.500, and you repurchase it and give a back borrowed amount of $35.00 to the agency. You earn $5.00 on 10 bitcoin by short-selling.
How to Short Sell Bitcoin?
Short sell bitcoin is the act of selling cryptocurrency, hoping to fall the value and repurchase it at a low price. For short-sell bitcoin, you need to contact crypto trading agencies where you set short sell orders. The trading agency supplies bitcoin on the assumption that you repay it in the future equal number of bitcoins.
How to short bitcoin on Binance? First, we discuss what Binance is? It is an online exchange website for cryptocurrencies. For short bitcoin on Binance, you need to create an account on the website then examine different options for shorting on Binance. This offers you three other options: you have to choose one option and start a short bitcoin. There are various ways to short-sell bitcoin.
Short Sell CFDs
It stands for contract for difference. It is an advanced investment instrument in trading. Instead of borrowing, you agree to sell and then buy bitcoin at a lower price. So, if the price drops and you face difficulty in buying and selling coins, in this case, you get the difference in pay.
eToro and plus500 are trading websites that supply cryptocurrency on CFDs for the short sale of bitcoin. These two websites offer not only crypto but also traditional investing. Some CFD companies permit you to exit early before the contract ends. So, if you notice a chance to lose, you turn out before the loss.
Shorting via a Bitcoin Exchange
In this strategy, it is not easy to find someone who is willing to give you bitcoin. Many exchanges offer to lend bitcoin, but it is below the type of a margin account. There are different interest charges on borrowing and additional payments on loans. The term borrowing refers to borrowing and charging interest rates by exchanges.
Different bitcoin exchanges offer short selling of cryptocurrency and allow leverage shorting. Leverage shorting is the process of borrowing more money than the actual amount you owe for buying bitcoin. Bitmex, Bitfinex, and Kraken are significant exchange offerings to short bitcoin.
Some cryptocurrency exchanges offer margin trade. It is the process of borrowing money for investment from trading companies and brokerage. With the help of margin trading, you can buy more coins. Later you sell them when their price goes up. It is the best way to make a profit from shorting bitcoin.
Certain exchanges like BitMEX offer options for bitcoin trading. Options are types of financial security. If you buy an option agreement, it allows you to get financial assets. But not the responsibility to buy and sell at the set price of an underlying asset before a specific date. This method is not suitable for beginners.it is complex but allows you great flexibility and leverage.
The Risks of Shorting Bitcoin
Shorting Bitcoin is quite risky. When you are normally investing in bitcoin, your losses are limited because you invest a limited amount. While the short-selling price of coins rises infinitely. Therefore traders who are engaged in trading and short selling must be aware of the risk associated with shorting bitcoin. Let explain with an example:
Suppose that you short sell $100 of bitcoin when its price is $10 per share. This means you short sell 10 coins. Let’s assume that the price of coins suddenly goes up to $4000, mostly in bitcoin. It means that you need to pay back the cost of $40.000 per 10 coins. If you short-selling any asset, be careful about its outcomes.
Risk of a short-covering rally and squeeze. The investor closes their short position when the price of the stock rises. An increase in the price of a stock is known as a short-covering rally. A short squeeze is a pressure faced by traders during short-covering rallies. Investors experience pressure on their profit and chance to lose.
Frequently Asked Questions (FAQs)
Is there an ETF to short Bitcoin?
EFT is an exchange-traded fund. BetaPro inverse bitcoin EFT is the first exchange-traded fund that allows investors to gain funds for the bitcoin future.
Can I short Bitcoin on Coinbase?
GDAX, the cryptocurrency exchange, is a Coinbase trading agency. Now, it has added margin trading. You can now short bitcoin on leverage up to 3x. If you have enough knowledge of trading and exchanges, you can short enough of your assets.
How do you make money with Bitcoins going down?
The price of bitcoin can change at any time. When the price goes down, you can buy it and sell it again when the value of coins is high. It is the best way to maximize and earn profit. So, this is shorting bitcoin and other ways include swing trading, investment in trade-resistant coins, etc.
Can you short Bitcoin on Robinhood?
It does not offer short selling, but you need to create a margin account with a financier, which gives you short bitcoin. The same margin account is required for Robinhood for short-selling bitcoins.
Well! That was all about how to short bitcoin so far. Short selling is a great step to making money, but it is quite risky. Before you start short selling bitcoin, it is essential to understand the strategies of shorting bitcoin.
Shorting bitcoin is the process of borrowing an asset from a brokerage to invest in the stock, hoping to repay it when bitcoin value is falling. Usually, it is not the best idea for beginners due to its highly risky nature.
We hope that this article would have cleared all your doubts about shorting bitcoin. Will you go for it in the near future and why? Let us know in the comments.