Fabio Rosales Coria This can be a great way to decide if shorting is a strategy you might be interested in. In addition to spot markets, Kraken supports both margin why is bitcoin capped at 21 million and futures markets. Kraken offers over 100 margin-enabled markets for you to long or short cryptocurrencies with up to 5x leverage.
The price of Bitcoin at any one time can vary, sometimes considerably, between platforms, so you might find it best to buy the coin from one platform and sell it on another. Bitcoin has a futures market where a buyer agrees to buy security through a contract. This contract states at which point and at what price the security will be sold. Buyers of such contracts normally critical code studies wikipedia believe that the value of the security will rise, however, those who believe otherwise can also choose to sell futures. You can short sell Bitcoin futures on several advanced platforms, including Kraken, and Plus500. From this overbought RSI status, bearish crypto traders may assume that the crypto market is cautiously optimistic about BTC’s continued rally.
You also have the option to close your position automatically using price triggers. The platform also supports iceberg orders that let you scale into larger positions discreetly without advertising the size of your order. This is when numerous short-selling traders start closing their positions in order to cut their losses. As a result, the coin’s price surges, causing even more traders to close their positions. If you’re interested in shorting Bitcoin but are concerned about the risk, you can get a much better understanding of it by using OKX’s demo trading account. Under «Assets,» select «Start demo trading» to enter a few test positions to see how they perform.
Regardless of your price per BTC or the size of your position, you can only lose the capital you initially spent. For example, if you bought 0.1 BTC at $35,000 and the price suddenly went to $0, you could lose a maximum of $3,500. For example, say you want to trade $3000 worth of BTC, you will probably need to have at least $1000 worth in your margin wallet before the exchange will lend you funds.
Shorting Bitcoin or another crypto can also help you hedge your portfolio to protect against downside risk. For example, if Bitcoin falls by $10,00, you lose that entire amount (on paper) without hedging. However, if you take a smaller short position, you can reduce the downside risk. EToro, one of the leading online brokerages, offers CFDs with or without leverage.
- Instead of taking a position on the actual asset, you’re just betting on the price, earning the difference in price if the trade goes your way.
- Market exuberance can lead to overbought conditions, suggesting that the asset price may be ready for a correction.
- Then, you need to borrow a certain amount of Bitcoin from the exchange and sell the borrowed amount at the current Bitcoin market price.
- Therefore, if you’re an aspiring trader, you should have a solid understanding of what it means to be long or short on an asset.
Generally, risks center on leverage trading, but market timing can be a risk as well. However, this type of trade isn’t supported in all markets, with the US being one example. These CFD Brokers offer users the simplest and quickest way to start shorting Bitcoin as well as other popular cryptocurrency. Then, enter the price you wish to short from, the desired leverage multiple — choose 1x for no leverage — and the amount of BTC you want to short. Your gains from this trade — minus any exchange fees — will be $5,000. This is because you originally received $35,000 from the sale of the borrowed BTC and spent $30,000 repurchasing it to repay the debt.
This process can also take place if the price of Bitcoin increases, but that would not be considered short selling. Whether or not you are allowed to keep your short trade open until your losses reach such high figures depends on the amount of margin power your account balance can command. Unfortunately, an exchange will automatically close your short position if your account balance is unable to cover these losses and repurchase the borrowed assets. In regular trading, where an asset is bought low and sold high without leverage, the maximum risk is the initial investment. For instance, if you buy Bitcoin and its value drops by 50%, you can hold it until its value rises again, avoiding realized losses.
For example, Kraken offers margin trading for qualified accounts with 5x leverage on the Kraken Pro advanced trading platform. This leverage limit is conservative compared to many other platforms, but the lower leverage can be much safer in fast-moving markets the definitive guide to configuration management tools like Bitcoin. If the trade loses money, your collateral could be liquidated to close out the trade and recoup the value of the borrowed BTC. To short bitcoin, you need to have an account on a cryptocurrency exchange that offers short selling services.
However, technical analysis isn’t an exact science, and prudent traders always seek to hedge positions and practice risk management. While a discussion of risk-management measures is outside the scope of this article, users may find our introductory guide to day trading crypto useful with its trading tips. Kraken, leveraging blockchain technology, offers diverse services catering to a broad spectrum of traders, from beginners to advanced professionals.
Now you understand the mechanics of short-selling, we can introduce some techniques that skilled crypto traders use to maximize their gains when prices are dropping. While we don’t recommend them to novice traders, they’re worth understanding — particularly if you want to take your trading to the next level. Your potential losses are theoretically infinite and gains are capped. This is ultimately what scares off beginners because the losses can outweigh the amount of funds in a trader’s portfolio. Crypto traders often use the terms «long» and «short» to describe positions in a market.
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In this scenario, your total loss would be $3,000 since the price to buy-back the 0.1 BTC is now $6,500. Bitfinex, as of 2024, is a popular global cryptocurrency exchange known for its low fees and extensive crypto support. Its advanced trading tools and options cater to a wide range of users. Imagine a scenario where Jim believes that Bitcoin’s value will decrease shortly. In response, he borrows 5 BTC (or any other chosen amount) from an exchange and sells them under an agreement to return the same quantity of 5 BTC in a month. If Jim’s prediction proves accurate, he will buy back the 5 BTC later in the month at a lower price than he initially sold them for.
Options trading through traditional brokerages requires approval by the provider, so many crypto options traders use crypto exchanges like OKX, Binance, or Bybit. Shorting Bitcoin is a viable option for traders comfortable with the risks. Several exchange-traded products and strategies are available for shorting Bitcoin.
The Regulatory Status for Bitcoin Is Still Developing
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 investors to «borrow» money from a broker in order to make a trade. It’s important to remember that margin involves leverage or borrowed money, which can increase profits or exacerbate losses. Many Bitcoin exchanges allow margin trading at this stage, through which Kraken and Binance are some popular options. To achieve this, they usually borrow the asset and immediately sell it for the current market price. If the asset’s price decreases, they can close their position by repurchasing — known as covering the short — and returning it to the lender.
Risks when shorting Bitcoin
Of course, if the price does not adjust as you expect, you could either lose money or Bitcoin in the process. If you wish to short the currency, you’d execute a put order, probably with an escrow service. A put means you would be seeking to sell the currency at today’s price, even if the price drops later on.
How it works is that an exchange will basically let you borrow some commodity with an agreement to return it later. While you have the asset, you are free to do with it as you please, so long as it is returned by the agreed-upon time. The phrase “shorting Bitcoin” gets used a lot by traders, and just from the context, it is easy to discern that it means betting that the BTC market will go down.
Interested in profiting from the potential decline of cryptocurrency prices? Shorting crypto, also known as short selling, is a strategy that allows you to profit when the price of a cryptocurrency falls. With 5x leverage, you’ll use your deposited funds as collateral for the short trade. On the other hand, it puts your collateral at risk and amplifies your losses as well.
