Best ways to start shorting crypto
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.
| Bear market means dropping prices in the crypto 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 certain cryptocurrencies 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 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 a simple investment strategy. In this case, you invest in cryptocurrency because its value can grow over time.
It entails trading cryptocurrency, which guarantees that you have funds and that the profit is calculated on the basis of the market value of your cryptocurrencies. This 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.
Short vs Long Positions
The short and long positions are completely different strategies for investing in cryptocurrency. Let’s consider the difference between them:
| Short position | Long position |
| The market participant acts according to a reverse strategy and waits for the value of assets to decrease in order to buy them out cheaper. | A trader purchases assets at a time of decline in value in the hope of further growth. |
| When shorting crypto, a trader can borrow a digital coin from the exchange, make a profit, and then return the loan back. | Long-term traders always use their own money to long cryptocurrency. |
| Traders get a profit from the decline in value by entering short positions. | Traders who open long positions can only make money in a growing market |
These two types of strategies can lead to both huge profits and loss of investor funds. The selection in favor of one or another trading strategy depends only on knowledge of the cryptocurrency market, personal preferences, and the experience of the traders.
How can you short crypto?
Here are several ways how to short cryptocurrency:
- Cryptocurrency Exchange
- Futures
- Prediction Markets
- Bitcoin Assets
Best exchanges for shorting crypto on the Cryptorobotics terminal
If to open short positions in the stock market, you need to gain the broker’s trust to get a loan from him, then with digital currencies, everything is much easier. If you decide to short cryptocurrency, Many cryptocurrency exchanges have implemented a margin trading system with different leverage sizes in order to short cryptocurrency. Margin trading rules are established by the administration of the trading platform. Each exchange allows shorting specific cryptocurrencies and sets the leverage at its discretion.
There are three best futures exchanges with the best conditions for margin and shorts on the Cryptorobotics platform:
These exchanges are considered the best for shorting crypto and help traders easily open short positions via the Cryptorobotics platform.
By the way, you can use the different algorithmic tools on this trading platform for improving the quality of the trades and reducing the risks. Let’s consider them below.
How to prevent the risks during opening short positions using the Cryptorobotics trading platform?
The bear market carries huge risks for investors. So, as we have already said, if a trader does not have proper knowledge of the cryptocurrency market, he should not short-selling in cryptocurrency or he can use algorithmic cryptocurrency trading.
The Cryptorobotics trading terminal offers its users various trading methods and strategies. Therefore, users of the Cryptorobotics trading platform can trade both short and long positions. This is due to the fact that the platform has a huge number of tools that allow you to trade manually and use algorithmic trading.
It has to do with the fact that various algorithmic trading tools are available on the platform. Due to these tools, traders have the opportunity to trade both long and short. Let’s take a closer look at algorithmic tools to short cryptocurrency on the Cryptorobotics platform.
Crypto trading bots
The platform provides three new types of crypto trading bots that are called Crypto Future. These bots are capable of trading both in growing and falling markets. For this reason, traders have an opportunity to receive signals from these types of robots both for short and long strategies. These crypto trading bots differ in their risk management and crypto pairs.
Autofollowing
Autofollowing is a type of algorithmic trading that helps investors trade with a help of a robot that follows analysts’ signals.
If you want to short crypto, you have the option to subscribe to a new AI Columbus Futures Autofollowing channel using artificial intelligence algorithms to predict the price for every next hour. The system decides to send a signal now or wait for a more suitable trend in the cryptocurrency market.
Signal trading
Signal trading is a feature that greatly simplifies the trading process and helps prevent traders from losing their money as well as increases the chances of making a profit.
Cryptorobotics terminal provides traders with the opportunity to follow analysts’ signals and control the effectiveness of their execution from a single interface.
Crypto signals are completely automated and make the entire crypto trading process easier, more qualitative, and faster.
OCOs, or Smart orders, Limit orders, and Stop-limit orders
There are a number of risks to consider when opening a short position. Even many experienced traders have gone bankrupt due to short positions. If the asset price rises due to some unexpected news, this can lead to a significant loss.
Therefore, any trader who is going to enter the short positions should customize such functions on the Cryptorobotics platform as OCOs, or Smart orders, Limit orders, and Stop-limit orders. These functions will help the trader minimize the risks of losing their funds and increase their profit.
OCOs (Smart orders) are an advanced trading function that allows traders to navigate volatile cryptocurrency markets.
To use OCOs (Smart orders), you can set up Stop Loss and Take Profit on the Cryptorobotics platform.
Stop Loss (SL) is designed to save the trader’s funds during trading. Typically, this type of order is set up as an addition to an open position and is used to mitigate risks.
Take Profit (TP) is also intended in addition to an already open position. The main aim of the Take Profit function is to set a target profit level.
A Limit order is an order that you place in the order book with a specific limit price. The limit price is determined at your discretion. Once a limit order has been placed, the trade can only be executed if the market price reaches your limit price (or better price). Therefore, you can use limit orders to buy/sell at a price above or below the current market price.
A Stop-limit order is the same limit order, only pending until a certain condition is met. That is a particular price is reached for a specific coin. This order does not reserve the number of your coins until the moment of its execution.
By configuring these functions, the trader will be able to protect himself from losing funds. Moreover, thanks to the tools provided on the Cryptorobotics trading platform, traders can significantly increase their chances to get a profit from shorting crypto.
How to open short positions on the Cryptorobotics trading platform?
In order to start shorting cryptocurrency on the Cryptorobotics platform, you need to select one of the three futures exchanges or several exchanges on which you are going to open a short position. To do this, you need to follow these steps:
- Pass the procedure of registration.
- Create an account on one of the futures exchanges that are integrated exchanges into the Cryptorobotics trading platform.
- Bind the account created on the exchange to the Cryptorobotics trading terminal by using the API key.
- Transfer the cryptocurrency to the exchange wallet (if there are no funds on the exchange).
- Start manual or algorithmic trading.
After you complete these steps, you will be able to short-sell cryptocurrency or use any other crypto trading strategies.
Advantages and disadvantages of short-selling in cryptocurrency
Advantages
Many people do not like short-term traders, because when the market falls, bears look happy against the background of general gloom. Meanwhile, the shorting crypto is beneficial not only for short lovers but also for the market as a whole:
- A short position is the fastest way to make a profit. Many people know the saying: “Stairs up, elevators down.” Thus, taking a profit in a falling market can be a great and fast opportunity.
- This strategy protects profits and empowers. The only reason not to short is to invest for the long-term. In all other cases, opening short positions and combining them with long positions allow you to make money in both a falling and a growing market.
- Ensures impartiality. In trading, you need to look for opportunities in both directions. If you only trade in a growing market, you will inevitably run into frustrations and it can lead to possible market avoidance.
- The honesty of prices. Shorting crypto is very important to the market and helps to maintain fair prices. This is an important aspect of reaching a consensus on asset values, and without it, the market would not be fair. When the cryptocurrency or stock market undergoes short sales, it only means that the assets are weak and are not trusted by traders and investors. Market participants, who open short positions, help establish an adequate price for assets and allow investors and bulls to resist self-deception.
Disadvantages
When playing for a fall, there are three main disadvantages to consider:
- The asset price may go up. Cryptocurrency markets are in constant flux. The value of assets is influenced by a huge number of factors, some of which are not so easy to predict. Thus, predicting the future value of an asset is not an easy task. The error can be equal to the loss of the entire deposit, from which even experienced traders are not insured.
- Not all assets can be shorted. In the stock market, you cannot short securities that have only recently passed IPOs, as well as stocks and other assets that have not shown signs of growth for a long time. The cryptocurrency market also has its limitations, such as the trading terminals of each exchange containing different trading pairs for margin trading. Therefore, the trader has to choose from the available ones.
- Fees. Short cryptocurrency must be calculated in advance, taking into account the trading and margin fees. Otherwise, even with a successful forecast, the trader runs the risk of going negative.
Conclusion
Shorting crypto can bring a fairly high income to the trader, even against the background of a general market decline. If you trade on the exchange but do not use short strategies; then, this is not full-fledged trading. Market participants should be able to make money under any circumstances and trends, and for this, they need to be able to play both up and down.
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