Successful trading on the stock market often requires a keen strategy of risk vs reward. This is no less true when trading in digital currency, where based on a variety of factors, market values will constantly and naturally increase and decrease. For investors predicting a crash in the market, or those looking to make a quick profit, short selling is an option to consider.
Short-selling, or ‘shorting’ as it is more commonly known in the trading world, is the investment practice of borrowing an asset, in this case, digital currency, with the intention of profiting once the trade value of the asset has dropped. To better understand, consider this example:
- Five Bitcoins are borrowed and sold at the current market value of $5000, equaling $25000.
- When the market value decreases to $4500, you’re able to repurchase the five Bitcoin for $22500.
- This enables the investor to pay back the five Bitcoin and make a profit of $2500.
Ways to Short Cryptocurrency
If shorting is an option you are considering, there are several ways in which to do this. Traders may also want to consider using platforms dedicated to the exchange and trade of digital currencies.
Cryptocurrency Margin Trading
One of the simplest means of short selling is through using margin trading services offered by cryptocurrency exchanges. This allows traders to lend capital directly from the broker in order to make the trade.
The capital is borrowed at an interest rate that increases the leverage to the lender. The leverage involved is an essential factor to consider when shorting as it affects the profit and loss margin of the trader. A few of the more common platforms to conduct margin trading are:
Crypto Futures Market
A future trade is an agreement between two parties whereby the buyer agrees to purchase an asset at a set time in the future, at a set price. Futures contracts have become an increasingly popular method of trade as it is a straight-forward contract.
This type of contract is particularly beneficial when traders are skilled at predicting the rise or fall of market prices. This enables the buyer, should they anticipate a price surge, to secure the purchase at a predetermined price and profit from it later on. Trading in Futures is popular on exchanges such as:
- TD Ameritrade
Prediction markets are a relatively new type of trade and present another way of shorting cryptocurrencies. These markets allow traders to create an event of which the results may be wagered on. Traders may predict an incline by a certain margin, and profits made will depend on how many people decide to take up the bet. Platforms that can be found hosting prediction markets are:
Short-selling crypto and bitcoin can be a rewarding experience and especially so for traders with an ability to read and predict market trends. There are many methods through which this trade can be made, with dedicated platforms on which to trade securely. Understanding the terms involved with the various markets will help you make the trades that are best for you and your pocket. For more information on short selling bitcoin and other cryptocurrencies, please visit Tradingbrowser.