Short Selling: Ultimate Guide For Beginners

What Is Short Selling in Crypto?

Short selling in crypto means betting on a token’s price decline by borrowing it, selling at the current price, and buying it back later at a lower price. Traders use this to profit in bearish markets without owning the coin directly.

Crypto shorting in futures refers to the strategy of selling a cryptocurrency futures contract with the expectation that the price of the underlying cryptocurrency will decrease. By shorting a futures contract, traders can potentially profit from a decline in the price of cryptocurrency without actually owning it.

How Does Crypto Shorting Work Step-by-Step?

Crypto shorting works by borrowing a crypto asset, selling it immediately, then buying it back later if the price drops. The profit is the difference between the sell and buy-back price, minus fees.

Entering a Short Position

To short a cryptocurrency in the futures market, you enter into a contract to sell the cryptocurrency at its current price, expecting that its value will decrease before the contract’s settlement date.

Price Decline

If the price of the cryptocurrency declines as you predicted, the value of your futures contract will increase relative to the original position. You can then buy back the contract at a lower price, closing your short position at a profit.

Closing the Position

When you believe the price has dropped sufficiently or before the contract expires, you close your position by buying back the contract. The difference between the selling price (when you entered the short) and the buying price (when you close the short) represents your profit, minus any fees.

How Do I Short Crypto on Bitunix with Leverage?

You can short crypto on Bitunix by funding your futures account, choosing a pair (e.g., BTC/USDT), selecting leverage, and placing a short order. Profits come if the asset falls, but risk rises with higher leverage.

Before you can start trading, you’ll need to deposit funds into your trading account. Shorting crypto using USDT-M Contracts is one of the easiest methods to short crypto positions. You can short crypto futures on Bitunix.

Step 1: Fund your account with USDT. Once you deposit USDT into your spot account, you can simply transfer the amount to your futures account.

Step 2: Navigate to the futures trading section and select the cryptocurrency futures contract you wish to short (e.g., BTC/USDT futures).

Step 3: Choose leverage, set the take profit and stop-loss as per your trading strategy.

Step 4: Now, click on short to place the order. To short the cryptocurrency, place a sell order for the futures contract. This means you’re selling the contract now, expecting to buy it back at a lower price in the future.

Step 5: After placing your short order, monitor the market closely. Cryptocurrency prices are volatile, and your position could move in either direction quickly.

Step 6: Next, when the price of your cryptocurrency has dropped to your target level, close your position by buying back the futures contract at the lower price.

Final Step: Once your position is closed, you can withdraw your profits or keep them in your account for future trades.

Why Use Leverage When Shorting Crypto?

Using leverage in crypto shorting allows traders to amplify profits from even small price declines. For example, 10× leverage on a 5% drop can yield a 50% return. However, it also magnifies losses, so careful risk management is essential.

Leveraged trading allows you to amplify your potential returns by controlling a larger position with a smaller amount of capital. When combined with shorting, this strategy offers several benefits for traders who expect the price of a cryptocurrency to decline.

• Amplified Returns: With 10× leverage, a 5% drop in the price could mean a 50% return on your capital.
• Lower Capital Requirement: You can open larger trades with less upfront capital.
• Profit in Bear Markets: Shorting provides opportunities when prices fall.
• Diversification of Strategies: Use alongside longs or hedging positions.
• Around-the-Clock Trading: Enter and exit positions 24/7.

What Factors Should I Consider Before Shorting?

Before shorting, traders should weigh their leverage, capital size, risk tolerance, time horizon, and exit plan. It’s crucial to decide how much you’re willing to lose if markets rise instead of fall.

• Are you planning to use leverage, and if so, how much?
• How much cryptocurrency do you want to short-sell?
• How long do you intend to keep your short position open?
• What’s your strategy if the crypto’s price rises instead of falls?
• Would you prefer active monitoring or automation?

How to Short Sell Crypto on Bitunix?

To get started with short selling crypto on Bitunix, you need to open an account on Bitunix and complete your KYC.

Once you complete your KYC, you need to fund your account with crypto like USDT. Once funded, transfer the amount to your trading account.

Next, navigate to the trading menu and choose the cryptocurrency pair you want to trade, such as BTC/USDT.

Decide on the level of leverage you want to use. Leverage allows you to control a larger position with a smaller amount of capital.

Now, select the order type, set your stop-loss and take profit. Next, monitor your trade and close the position at your desired price.

Open a Short on Bitunix in 6 Clicks

1. Deposit USDT.
2. Transfer to Futures wallet.
3. Pick pair (e.g., BTC/USDT).
4. Select leverage (e.g., 5×).
5. Hit “Short,” set SL/TP.
6. Confirm and monitor liquidation line.

Long vs Short Basics

Bitunix vs Competitor for Shorts

Conclusion

Shorting cryptocurrency using leveraged trading offers the potential for high returns, capital efficiency, and the ability to profit in both bull and bear markets. However, while the benefits are significant, so are the risks.

Leveraged trading can amplify losses just as much as profits, making it crucial to use this strategy with careful risk management and a thorough understanding of market conditions. When used wisely, leveraged shorting can be a powerful tool in a trader’s arsenal, especially in the volatile world of cryptocurrencies.

Additionally, while creating your short selling strategy, also consider the trading fee and any taxes that might be applicable on the capital gains you accrue.

FAQs

Is short selling legal in crypto?

Yes, it’s legal on most exchanges but subject to regional regulations.

What leverage is safest for beginners?

Low leverage like 2×–3× reduces liquidation risk.

How do funding fees affect shorts?

You pay funding if the market favors longs, which can reduce profit.

Can I short without futures?

Yes, using margin accounts, but futures are more common.

What happens if price spikes above entry?

Your position risks liquidation unless protected by stop-loss.

Does Bitunix auto-liquidate?

Yes, once your margin falls below maintenance levels.

How to calculate short P/L quickly?

Subtract the buy-back price from the selling price, multiply by size.

Do I pay tax on shorting gains?

Yes, profits are usually taxed as capital gains, depending on jurisdiction.

About Bitunix

Bitunix is one of the world’s fastest growing professional derivatives exchanges, trusted by over 3 million users across more than one hundred countries. Ranked among the top exchanges on major data aggregators, Bitunix processes billions in daily volume and offers a comprehensive suite of products including perpetual futures with high leverage, spot markets, and copy trading. Users can trade bitcoin and other major cryptocurrencies on the platform, taking advantage of advanced trading features. Known for its Ultra K line trading experience and responsive support, Bitunix provides a secure, transparent, and rewarding environment for both professional and everyday traders. Bitunix Academy adds structured lessons so you can build skills while you trade.

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Disclaimer: Trading digital assets involves risk and may result in the loss of capital. Always do your own research. Terms, conditions, and regional restrictions may apply.