Cryptos can be volatile investments. While long-term holders might expect their value to continue increasing over time, bear markets still occur with cryptos as with stocks. Many traders look for opportunities to profit from price declines through shorting them; you can do this successfully for Bitcoin by following proper procedures and due diligence. While you can indeed short cryptocurrencies such as this one safely and wisely.
What Is Crypto Shorting? Crypto shorting involves borrowing cryptocurrency from a broker and selling it on the open market at a lower cost when its price decreases, then purchasing back at your broker at lower costs to pocket the difference – an often risky but potentially rewarding strategy for investors who correctly predict its price decline.
To short cryptocurrency, it is necessary to establish an account with a trading platform that permits margin trading – Kraken, Poloniex or Bitfinex are the top choices here and allow leverage up to 10x, giving you access to short large quantities with relatively modest initial capital investment.
Shorting cryptocurrency involves placing an order to sell at a specified price, known as the “strike” price, and waiting for its market price to fall below it. To be successful at shorting cryptocurrency, one needs a strong understanding of both market and technical trends related to that cryptocurrency as well as prediction tools like moving averages, Fibonacci ratios and extensions and chart patterns that enable one to predict future prices accurately.
If you believe the price of cryptocurrency will decline, short sale orders can be placed with exchanges or brokers offering CFDs (contracts for difference). These instruments allow bettors to bet against its price decrease without owning the asset themselves; only depositing a portion of it with them as collateral will they hold it for you as collateral.
However, it’s important to keep in mind that any firm or individual loaning you assets you shorted has the ability to recall them at any time. Also, your leverage can work both for and against you – therefore understanding and having an exit strategy in case something goes wrong should be paramount in shorting cryptocurrencies. It is wiser to short only those coins which you understand fully and believe will decrease in price otherwise large chunks could be lost from your portfolio. For best results it is advisable to consult a financial advisor first in order to identify risk tolerance levels as well as market analysis that fits into your investment strategy.