Thursday, May 19, 2022

How to Short Bitcoin Safely & Make Profits

The Takeaway:

Over the years, the crypto market has expanded as new ways to make profits from the assets were introduced. One such method is shorting of Bitcoin, but it's a tough task that requires an excellent analysis of the market. This article will give you the basics of the shorting of Bitcoin.

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If you thought that investing in Bitcoin and owning actual Bitcoins is the only way to be a part of the crypto market, then we would like to tell you that this is not true. As the crypto market evolved, more ways have come forward for investments and trading, and one such form of trading is the Shorting of Bitcoins, which is carried out on a margin trading platform.

Before we discuss how it is done and what all platforms can be used to carry out the shorting of Bitcoins, let us understand what bitcoin shorting is first.


What is Bitcoin Shorting, and why you should short bitcoin?

The standard thought process of every person is that whenever we invest, we can only make a profit on it if the price increases and goes over the “buy-in” price. But not many people knew that profit could be made as to the value of an asset decreases in value. This process is known as short sell the asset or selling short. However, shorting of Bitcoin is a concept that can only be implemented if the person is sure about the future decline in the prices.

Bitcoin is known for its volatility and looking at the past trends, knowing how to short Bitcoin can be a handy tool in a trader’s arsenal. Shorting is a crucial technique to understand with great potential in the Bitcoin market.

Short selling is the concept of making profits by buying a BTC at a certain point, and if the investment’s price declines, you’ll make a profit off of that investment. Usually, the lower the price is, the more profit you’ll make on the investment.

Let’s make you understand this better with an example. If you short a Bitcoin at $10,000 and the price drops to $8,000 in a few days, then it would fetch you a profit of about $2,000. However, things can change if the price goes long and climbs towards $11,000, then the person would lose $1,000. Shorting is riskier as compared to going long.


How to Short Bitcoin?

Shorting of Bitcoin should not be an impulsive decision as it requires a careful and long analysis of the market and study of historical trends. The process of shorting should be carried out only when you are confident enough that the Bitcoin price will go down.

Shorting of Bitcoin begins by borrowing a certain amount of BTC from the margin trading platform to sell them short. The ultimate goal of this is to buy back the same amount of BTC at a lower price. The profit you make is the difference that is left with you once you’ve paid the debt to the platform.

If the trade goes as planned and the Bitcoin price goes short, the profit made by the trader is safe, and the platform can lend them more BTC to sell short. However, if things go wrong, and the market goes long, the trader will be stopped out or REKT from the trade. This will happens once the initial investment has been used as well as the account will never go in the minus zone.

If you wish to make profits by shorting bitcoin, it is essential to study the market correctly and start with a small investment to understand the market better. There are other ways to short bitcoin as well and make a profit off of it safely.

Futures trading of Bitcoin is another way to short sell Bitcoin is the futures market. In a futures contract, you pose as the buyer and agree to buy the Bitcoin at a fixed price for a future date. In this type, you hope for the price to go above the fixed price so that you can buy the BTC below the market price.


Where to Short Bitcoin?

The process of shorting bitcoin is slowly picking up pace in the crypto market as more people are moving towards this way of trading. Looking at the surge in the interest of people in the shorting of BTC, many exchanges have come forward to provide the facility for margin trading.

There are various platforms for margin trading to short Bitcoin. One such platform is BitMEX, which offers the facility to long and short Bitcoin along with a variety of contracts for trading. You can leverage up to 100x leverage on Bitcoin, and for other cryptocurrencies, the leverage varies from 20x to 50x.

BitMEX charges a 0.075% fee on Bitcoin trades and a 0.25% fee on other crypto assets. Another platform for shorting of bitcoin is OkEX, which offers a 5x leverage on over 100 crypto assets, including Bitcoin, Ethereum, and Litecoin.

The sign-up process requires KYC, whereas BitMEX has no such policy. The fee on OkEX depends on the capital a person invests through the exchange. There are chances that Coinbase would add shorting of Bitcoin on their exchange as well in the future.


Conclusion: Should you short bitcoin or not?

The process of shorting of Bitcoin is considered one of the most challenging investment strategies, but it depends on the investor on how well they do the research and how well they understand the market. The benefits of the investments take time, and the volatility of the Bitcoin market is well known, so indulging in shorting of Bitcoin should be done at your own risk.

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Disclaimer: The article reflects the opinions of the author and is not representative of Chaintimes’ views.
The article does not offer any investment advice. User discretion is advised when investing in or trading with cryptocurrency. Extensive and diligent research should be carried out by the reader before making a decision.

Harry Finnerty
Harry Finnerty
After completing his graduation from Strayer University, Harry started to work in the real estate industry. However, soon he realized that his real interest is in the financial industry and once he came to know about bitcoin and the technology behind it, he dedicated his life to understand and write about it.

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