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Shorting crypto – is one of the popular methods of investment that helps you to receive profit from drops in the price of a certain asset. The cryptocurrency market is considered one of the most volatile. On the one hand, this is a disadvantage for investors, and on the other hand, traders generate money in this way.
There are a huge number of ways to make a profit in the cryptocurrency market. Some cryptocurrency investors or traders use technical analysis, while others will make an investment in companies and projects by using fundamental analysis. Thus, as a trader or investor, you also have many different options for creating a profitable trading strategy.
Shorting cryptocurrency is one of the popular methods of investment that helps you to receive profit As is the case with stock exchanges, the most popular and common behavior model among cryptocurrency traders is buying coins at a low price. This is how most traders act. Surely it is easier and less costly to buy a currency at a low price and wait for its growth. But no single coin has shown only an increase without a fall, so a cryptocurrency trader must know how to enter a short position. Thus, we decided to provide you with information on how to short crypto and make money on it, as well as what you should pay attention to.
What does shorting cryptocurrency mean?
Shorting crypto is a strategy that a trader uses with the aim to get a profit from the falling prices in the market, and this strategy of crypto trading is called “short”.
The main feature of this trading strategy is its fast expiration. Market participants who open trades of this type are called “bears”. They got this name due to the fact that they begin to short cryptocurrency during the bear market.
In other words, a short position is a short and fast leveraged trade. The implementation of this trading strategy is general for any digital coin and looks like this:
- The trader conducts a fundamental analysis of the cryptocurrency market and chooses the digital coin, the price of which should fall in the near future. The reasons for the falling price of cryptocurrency may be different: negative news, a problematic situation around this type of digital coin, or а general economic situation.
- Then the trader gets a loan from the exchange for a certain value of the coin that will be suitable for him. After a trader has borrowed the cryptocurrency, he must pay fees to exchanges for their services.
- The trader sells the coin while its cost is still at its peak.
- After that, it is necessary to wait until the price of a certain cryptocurrency declines and purchase it back, but significantly cheaper. The next step will be to repay the exchange and earn profits from the difference.
How does short-selling in cryptocurrency work?
As we have already mentioned above, In order to enter a short position, it is necessary to borrow the digital currency and sell it on the exchange at the current market price. After the declining price, the trader purchases the digital coin at a lower price, returns the borrowed funds, and receives income on the difference between the purchase and sale costs.
You can get a loan from other traders, who are rewarded in the form of interest income. The percentage of a borrower’s income depends on the length of the loan term that he provides to another participant in the cryptocurrency market.
Today, there are a huge number of trading platforms and exchanges, such as Bitfinex, Kraken, KuCoin, and others, that offer traders to use the services of margin trading. Therefore, they provide funds at relatively high-interest rates to increase their leverage. This leads to the whole process of lending funds for shortening cryptocurrency becoming automated and configured by default.
What Is Longing?
Traders open long positions to get profits when they buy digital coins at a low price in anticipation of market growth and sell them at a rising price. The difference between buying and selling is the trader’s net income. When holding great trades, the investor has to risk a huge amount of assets and take into account the amplitude of the market movement on long timeframes.
How To Long Cryptocurrencies?
Opening long positions to sell cryptocurrency at a higher price is the simple investment strategy. In this case, you invest in cryptocurrency because its value can grow over time.
It entails trading cryptocurrency with the best bitcoin robot, which guarantees that you have funds and that the profit is calculated on the basis of the market value of your cryptocurrencies. This is the traditional approach is based on low-buy and high-selling.
How to Short Crypto?
If the trader wants to short crypto, it is necessary to have the skills and willingness to analyze and predict the results. Thus, not every trader is capable of coping with the dropping market.
Professional traders are aware of when they will start shorting crypto. They investigate the market to know when it is worth selling and buying crypto. They wait for a certain period to start the process of “compression”. Due to compression, traders can receive a high profit from the created pressure on the market orders.
If you don’t have enough experience and knowledge of the crypto market, you shouldn’t enter the short positions during the falling market, but instead, wait for a growing crypto market and open long positions. This strategy will help you prevent your losses.
Before you start shorting a cryptocurrency, you need to choose the coin, the value of which should decrease in the future. Next, you need to determine the moment of entering the market, take a loan and place an order. The success of the operation and its profitability depend on the correctness of the decisions taken.
If you decide to short a cryptocurrency, you need to consider a few points:
- Market growth is always gradual, but a bearish trend is always implemented quickly. To get the most out of a short, a trader must learn to choose the right entry points.
- Shorting crypto allows you to earn a lot and quickly, but wrong actions can not only fail to bring results as well as lead to a loss.
- The profit largely depends on the size of the initial deposit. The larger the initial size of the deposit and the leverage offered by the exchange, the more profit you can take.