Key Takeaways
Short selling is the inverse of long selling, making it more suitable for bearish markets, while long selling is generally used in bullish markets.
Shorting cryptocurrency is one of the few ways of making profit from its falling price with borrowed funds (usually as leverage from an exchange) The idea is to profit from the difference between the selling price and the buying price.
Perpetuals and Futures trading is one of the easiest methods for shorting cryptocurrency to make profit off falling price of cryptos.
Effective short selling requires a solid understanding of market trends, technical analysis, and cautious use of leverage.
What is Short selling?
Crypto shorting in futures refers to the strategy of selling a cryptocurrency futures contract with the expectation that the price of 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 Shorting Works?
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.
Step by Step Guide to Shorting Crypto using 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.
Benefits of Shorting Cryptocurrency Using Leveraged Trading
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. Here are the key benefits:
- Amplified Returns: Leverage allows you to multiply your potential profits. For example, with 10x leverage, a 5% drop in the price of a cryptocurrency could result in a 50% return on your initial capital. This makes it possible to achieve significant gains even with relatively small price movements. (the numbers mentioned are indicative and should not be taken as any financial advice)
- Lower Capital Requirement: Leverage enables you to take larger positions without needing to invest a large amount of capital upfront. For instance, instead of needing $10,000 to short $10,000 worth of Bitcoin, you could use 10x leverage and only need $1,000 in capital. This allows you to allocate your remaining capital to other trades or investments.
- Profit in Bear Markets: Shorting allows you to profit from declining markets, offering more opportunities to make money regardless of market direction. This is particularly useful in the highly volatile cryptocurrency market, where prices can drop rapidly.
- Diversification of Strategies: Leveraged shorting can be used alongside other strategies, such as long positions or options trading, to diversify your portfolio and hedge against different market conditions.
- Around-the-Clock Trading: The cryptocurrency market operates 24/7, allowing you to enter and exit leveraged short positions at any time. This provides greater flexibility compared to traditional markets, where trading hours are limited.
Additional Reading: Main Risks Of Short Selling In Crypto Trading
What to consider while creating your crypto shorting strategy?
Before shorting crypto, it’s crucial to consider the following:
- 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 to manage the entire process actively, or are you looking for a more automated, hands-off approach?
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 you have funded your account with USDT, 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.
Wrapping Up
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.
