Another lesser-known way to short crypto is through the use of a contract for differences, or CFDs. With CFDs, you don’t actually own the underlying asset — in this case, cryptocurrency. Shorting also requires a margin account with an exchange, which can be difficult for some investors to obtain. It is important to weigh these carefully before deciding whether or not to take this type of position.
- You could short sell Bitcoin as a way to profit from that price drop.
- In the end, you have netted $10,000 from shorting Bitcoin (minus platform fees and margin interest).
- The platform charges spot fees of 0.16% for makers and 0.26% for takers + up to 0.02% to open a position and up to 0.02% per 4 hours in rollover fees to keep the position open.
- You return the 1 BTC back to the exchange, and your margin position is closed.
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. Kucoin is a popular cryptocurrency trading platform that offers short-selling features for traders. The platform supports many cryptocurrencies, including BTC, ETH, USDT, and more. Kucoin also provides margin trading, where traders can borrow funds to short cryptocurrencies.
Why Would Someone Want To Short Crypto?
Generally there are a number of different ways to go short including options, margin trading, futures contracts, short selling actual coins, and more. You can short crypto through any exchange that allows margin trading. Any cryptocurrencies that support margin trading can also be shorted.
As a holder of Bitcoin, if you think the price will go down, you sell at the current price, then buy it back after the price has dropped, making a profit. Since the Bitcoin is not ‘borrowed’ you are never forced to re-buy it to return to a lender. This means you can hold your short position for as long as you want at no cost. However, you must have enough money to buy and own the Bitcoin yourself. Bitcoin futures are available to trade on traditional financial markets through a few stockbrokers who offer the service.
If Bitcoin is overvalued, the price should theoretically drop to its correct value over time, as more people realize it and sell. In most cases you can short or long the top cryptos and use them as a proxy for the whole market. If the market is going down, then ETH, XRP, and BTC (for example) are probably going down and at least one is likely taking a hit as hard as any other crypto. Likewise, if the market is up, then they are probably all going up and in proportion with other cryptos.
Step 4: Monitor your trade
You could short sell Bitcoin as a way to profit from that price drop. To short sell crypto, you would enter a sell order with a broker who allows margin, sell it at the current price, and then buy it back at a lower price. Generally speaking, you don’t have to “return” the tokens or shares to the exchange you borrowed them from, it simply happens automatically when you hit the “buy back” button. Prediction markets (like Augur or Gnosis) allow you to short crypto without actually owning any of the assets. This can be helpful if you don’t want to tie up capital in something that could go down in value. Shorting bitcoin can be a risky move, but it can also be very profitable if done correctly.
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 multiply losses due to the underlying cryptocurrency’s price volatility. You can also trade perpetual Bitcoin futures on platforms like BitMEX if you have access to them. Perpetual futures do not have closing dates, allowing traders to set and forget positions or not have to worry about rolling them. The question of how to short Bitcoin does not have a simple answer.
Ways to Short Bitcoin
Kraken charges a daily interest rate on borrowed funds, which varies depending on the currency and the amount borrowed. To short crypto on Kraken, traders must deposit funds into their account and then choose the currency they wish to short. Traders can then enter their desired position size and select the leverage they want to use. Managing positions on Covo finance is easy, and traders can view their positions under their Positions list. They can also deposit or withdraw collateral, which allows them to manage their leverage and liquidation price.
These platforms allow you to borrow crypto from other users and then sell it on the open market. When you’re ready to buy it back, you simply need to repay the amount you borrowed plus any interest or commission that’s accrued. However, this is done automatically when you click buttons, so don’t worry about physically returning anything.
- Remember that trading on margin is risky and you could lose more than you intended if market conditions sour.
- In simple terms, “shorting” is just betting that an asset will go down.
- Trading on margin is risky and you should only borrow funds to trade if you understand and accept the risks involved.
- Coinbase began offering Nano Bitcoin Futures trading on June 27, 2022.
- Bybit is a trading platform that supports a variety of advanced trading features.
You can also short other cryptocurrencies on Kraken, like Ethereum, Litecoin, and Bitcoin Cash. On the other hand, if you short sell crypto using margin, you’re borrowing money from a broker to finance your trade. This means that if the price of the crypto goes down, then you stand to make a profit by giving the tokens/shares back to the exchange. Of course, this also means that if the price of the crypto goes up, then you could lose a lot of money.
What Is Shorting Crypto?
However, rest assured that our editorial content and opinions remain unbiased and independent. These affiliate earnings support the maintenance and operation of this website. It is just as important to ask when, or whether to short Bitcoin as it is to ask how to short Bitcoin. If the price is lower, the other person pays the difference to you. Trade Bitcoin for Free, use leverage, and get all current welcome bonuses at Bybit with referral code CCFsignup. Many exchanges cater to different types of clients, and getting the best trade starts with knowing what to look for.
Perpetuals are traded with a funding rate periodically paid by one side of the contract to the other, keeping the contract price close to the underlying asset’s price. Shorting is a trading strategy to profit from a cryptocurrency’s price decline. 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 cryptocurrency prices. 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. Platforms like eToro support crypto CFDs for traders looking to short crypto.
It also gives traders more options when choosing which crypto to be short. With multi-asset collateral, users can invest multiple assets as collateral to borrow and trade on leverage. This feature allows traders to operate with more flexibility when opening trades. For those looking to short sell crypto, bitcoin futures can be a useful tool. By entering into a contract to sell bitcoin at a future date, you can lock in a price and then sell the coins when the price drops. This can be a risky strategy, as the price of bitcoin could continue to rise, but it can also be a way to make a quick profit if the market turns.
Kucoin is a good option for traders looking to short cryptocurrencies with margin trading. However, traders should be aware of the risks involved in shorting and only use the leverage they can afford to lose. Kucoin charges relatively low fees, with maker and taker fees of 0.10% each for spot trading. However, margin trading fees can be higher, with a 0.1% opening fee and a daily interest rate that varies depending on the cryptocurrency and the amount borrowed. It’s essential to closely monitor the margin level and take necessary actions to avoid automatic liquidation.
Best Platforms to Short Cryptocurrencies:
Another great way to short crypto is by looking for a double top pattern. This happens when there’s a significant price increase, followed by a period of consolidation, and then another price increase that fails to reach or sustain new highs. This signals that the uptrend may be reversing and that it could be a good time to short.