Shorting bitcoin could be a smart choice for those who feel the currency will crash at some point in the future. Short selling Bitcoin and other cryptocurrencies is a strategy to profit from a coin’s decline in value. However, due to the significant risks involved, it is a more complicated investing choice best suited to experienced traders. This post will show you how to short Bitcoin in three different methods.
What does Short Selling Bitcoin Mean?
Short selling, often known as short or shorting, is the process of profiting when the price of a cryptocurrency falls. For example, you borrow a coin, such as Bitcoin, to sell it at the current price at the first step of the transaction. Then, you repurchase the asset later or date, ideally when the coin’s price has plummeted, to repay your debts. These transactions, if done correctly, should theoretically result in a profit.
If the price had been reduced, the cost of repaying your loan would be less than it had been before. But, of course, if the price rises instead of falling, you will most likely lose money to settle your loan. All of these transactions will be handled automatically by the exchange or broker; all you have to do is set the limits and stop-losses.
3 Common Methods to Short-Sell Bitcoin
- Margin Trading
A cryptocurrency margin trading platform is one of the simplest ways to short bitcoin. Many exchanges and brokerages permit this sort of trading, with margin trades allowing investors to “borrow” money from a broker to place a trade. It’s vital to keep in mind that there could be a leverage component at play, which can raise your earnings or decrease your losses.
2. Prediction Markets
Although prediction markets are new to the cryptocurrency world, they have shown to be a reliable way to short Bitcoin. Traders who participate in prediction markets can generate an event and bet on its outcome. For example, you could forecast that the price of Bitcoin will drop by a particular percentage, and if your prediction is proven right, you will profit. If the price of Bitcoin rises, the same procedure can also occur, but this is not called short selling.
3. Binary Options Trading
People can also short bitcoin using call and put options. If you want to short the currency, you will place a put order, most likely with the help of an escrow provider. This indicates you want to sell the currency at the current rate, even if the rate declines later. A variety of offshore exchanges provide binary options, but the costs (and risks) are significant.
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