This contract states at which point and at what price the security will be sold. Buyers of such contracts normally 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. Bitcoin is the primary cryptocurrency and the most popular, meaning that most crypto products will include this asset. However, short selling is open for other cryptocurrencies using the PrimeXBT platform.
Technical analysis is based on the theory that history will repeat itself in terms of prices and the market trend. This past information can then be used to make informed decisions about the future. It was created in 2008, and it has only started receiving attention recently. The history of Bitcoin is still short, and there is not much information that can allow an investor to make an informed decision.
The Costs of Shorting Bitcoin
By choosing the right trading platform, understanding margin and leverage, and utilising technical analysis, traders can navigate the complexities of short selling. However, it’s crucial to approach short selling with caution, recognizing the high risks involved and implementing robust risk management techniques. With thorough market research and a disciplined trading approach, traders can make informed decisions and potentially profit from Bitcoin’s price declines. To short Bitcoin, traders typically use margin trading, which involves borrowing funds from a cryptocurrency exchange to execute the trade.
- A trader looking to short Bitcoin will ideally take the sell side of the futures contract and agree to sell BTC to the buyer at a certain price.
- BTC prices have rallied in recent weeks due to rampant speculation regarding the Bitcoin halving that’s due to happen in April 2024.
- This method involves selling bitcoin at a high price and repurchasing it when the price drops.
- These CFD Brokers offer users the simplest and quickest way to start shorting Bitcoin as well as other popular cryptocurrency.
- Now, if the asset that you sell is yours, you are not particularly making any money when you buy it back later.
- Short selling bitcoin-related stocks or companies with significant exposure to bitcoin is an indirect way to short bitcoin.
To follow along with this guide, first, create a Binance account and verify your identity. You can check out our comprehensive Binance review for further details about the exchange and how to create an account with the service. It represents the most straightforward implementation of the short-selling concept compared to the other methods available. While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, new platforms might start off “clunky” and be more susceptible to hacks. If the price goes up (instead of down, as you had hoped), you could end up with significant losses.
What Are the Risks of Shorting Bitcoin?
Of course, if the price does not adjust as you expect, you could lose money in the process. Investors hold long positions, generally on spot markets or low-leverage position trades. Investors often trade without stop losses as the chance of liquidation for a low-leverage position is decreased. Spot market trades can fall drastically, but without leverage, there is no chance of liquidation. Perpetual futures contracts, or “perps” are the most popular way to short Bitcoin, with billions of dollars’ worth of futures contracts bought and sold daily.
Exchange
Shorting bitcoin comes with risk as the asset is relatively volatile in fiat terms due to its short history — it has been around for only 14 years. Price swings can happen often, leading to substantial losses, especially when leverage is involved. Shorting is a common investment practice in traditional markets that have been adopted over to the nascent cryptocurrency space allowing crypto traders to bet on falling prices. Bitcoin (BTC), the most popular digital asset, is also the most heavily shorted crypto. 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.
Best Crypto Trading Bot Strategies 2025
You can also check the “Place Stop Loss / Take Profit” as well, which will bring up those options for you to fill in. Shorting bitcoin often involves certain costs and fees, which can vary significantly from one platform to another. Inverse ETFs are best bitcoin exchanges of 2021 designed to profit from a decline in the value of an underlying benchmark or index, in this case, Bitcoin. These ETFs are structured to move in the opposite direction of Bitcoin’s price.
If the repayment date is arrived at and the prices have dropped from what you sold the asset at, you will have made a profit. Binary options are all-or-nothing trades, meaning you either win a predetermined amount or lose your entire investment. While inverse ETFs mitigate the guides to open bitcoin wallet account need for leverage, they are still subject to the inherent volatility of Bitcoin and the broader market.
- Like in the traditional market, crypto exchanges will also allow you to choose the kind of order you want to create.
- Conversely, a short position involves borrowing bitcoin to sell at the current price, hoping to repurchase it cheaper if the price falls.
- It is crucial to understand the current market phase in accordance with historical cycles tied to Bitcoin halvings.
- After opening your position, you will have a chance to multiply your investment by achieving a high return on investment (ROI).
- Several exchange-traded products and strategies are available for shorting Bitcoin.
Short selling bitcoin-related stocks or companies with significant exposure to bitcoin is an indirect way to short bitcoin. Futures trading can be highly speculative, and the leverage involved can lead to substantial losses. However, the risk can be managed better compared to css ruleset terminology margin trading due to fixed contract terms. As mentioned earlier, a short position will involve you borrowing Bitcoin from the broker to sell therefore, we will use the Selling panel to borrow and set up the trade. It is possible to short Bitcoin and profit—if you can tolerate the risks and time it right, shorting Bitcoin can generate large profits. There is no stock that shorts Bitcoin, but there are exchange-traded funds (ETFs) that do so.
Using inverse exchange-traded products
That is why understanding timing is so important when discussing market trends. Read more about halvings and how they influence the entire crypto industry in our article. There is no ‘perfect set-up’ for short selling, but there are some things to consider when planning your trades. This is the percentage the exchange charges as a penalty for exceeding your margin ratio. Options can be complicated and are recommended for advanced traders or those with a background in traditional financial instruments. Inversely, if the price of Bitcoin rises and you do not have a stop loss in place, your entire trading account could be forcibly closed and your collateral liquidated.
Prediction markets offer traders the opportunity to create an event in order to wager on its outcome. For example, you could predict that the price of Bitcoin drops by a certain percentage, and if anyone counters your bet you can profit if you are proven correct. This process can also take place if the price of Bitcoin increases, but that would not be considered short selling. When looking for an exchange to use for margin trading, ensure it meets your demands.
The regulatory dilemma has made some of the popular cryptocurrency exchange platforms unavailable in some countries, such as the US. Moreover, some exchanges have been releasing products that have yet to pass due diligence in the hands of regulators. The other way of shorting Bitcoin is by using inverse exchange-traded products. These are bets made to predict that an underlying asset’s value will decline.
Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.
It is not possible to make a profit via direct assets if the price is going down. Shorting Bitcoin assets in a bearish market results in a reduction in losses rather than an actual positive profit. On the other hand, shorting BTC with CFD Brokers may result in positive profit. If you want to short Bitcoin, you can do so on a cryptocurrency exchange. However, with products such as inverse ETFs, you need to create an account with the firms offering the products.