Bitcoin Forum

📉Shorting 📉

I noticed many people had some misconceptions to what shorting is or how it works, so here it goes .....

At the most basic level, short selling is making a prediction that a price will go down rather than up.

Short sellers borrow coins that they do not own (typically from their broker’s account e.g Bitfinex ) and sell those coins at the current market price. The goal is to re-buy those coins at a lower price in the future and then return the borrowed coins to the lender. Short sellers are hoping they can profit off of the difference between the proceeds from the short sale and the cost of buying back the coins referred to as short covering.

For example, short selling 1,000 coins at $10 will land $10,000 in the short seller’s account. If the coins price declines to $7 per coin, the short seller could choose to cover his position by buying back 1,000 coins at a cost of $7,000. Once he covers his position, the short seller has netted a $3,000 profit ($10,000 minus $7,000) from the trade.

It is up to the broker when or how much can be shorted, he will also take back the intial amount when the shorting is complete through an automatic process.

While short selling can be an very profitable tool for traders under the right circumstances, it also comes with its fair share of risks. Short selling tends to be more risky than traditional stock/coin buying because the potential maximum profit and loss imbalance is reversed. When you buy a coin the potential losses are capped at 100 percent of the original investment and the potential gains are unlimited. When shorting a coin the maximum gain is capped at 100 percent of the original investment but the potential losses are unlimited.

When you short a coin you are exposing yourself to a lot of potential financial pain. In some cases when investors and traders see that a coin has a large short interest (a big percentage of its float has been shorted by speculators) they will attempt to drive up the price to force the shorts to "cover", or buy back the shares before it gets too out of hand. There are other risks too this is just an example, but all should be looked into first before you consider shorting.

While shorting can benefit investors and prevent loss in a declining market it is usually catered or taken on by more advanced or experienced traders. New comers to this space should be very careful when diving in, due to the potential risk you put yourself in when opening a short position. This is just a quick synopsis to educate and I recommend doing your own research before taking the plunge of shorting 👍

However hopefully now you atleast have an idea of how it operates.😃

Shorting has a place and you've offered a good basic description. In crypto however it's such a risky strategy. So many people have racked up huge negative positions by letting a short run. In a market that is overall so bullish in the long run it's best to steer clear of shorting unless you're very risk-loving and have a great understanding of shorting and how crypto markets tend to operate.

I mainly agree with your comment, except you can reduce your risk of loss by spread betting the short side of major cryptos with brokers like IG index, guaranteed stops and placing short positions. Has worked well for those who have caught the drop on our trade floor in London. Also Spread betting is also tax exempt and comes under the gambling act so no capital gains tax on positions. Great thread on shorting, think the pro's and cons need to be made more aware to the public.

Sam
myyield.io

I think shorting is a very risky move in crypto markets. It's profitable in the right occasions like you've mentioned, and looking at the recent drop in bitcoin price, from $20k to the current values, I would say traders had a great opportunity to short bitcoin. At the current levels I would say it's very risky, because bitcoin seems to be recovering. Another less risky option would be to just sell BTC, and then buying the dip. If you make a wrong guess, you can always buy back the coins at a higher price, and the losses would e smaller.

More exchanges need to offer shorting on margin. Until GDAX re-enables it, we'll continue to see a biased market where the vast majority of players can only go long or sell to cover long positions. That means two things in general:

1) Up moves tend to be slow and steady while down moves tend to be sharp and vigorous

2) Dependency on Tether for those who aren't on fiat exchanges pose huge systemic risks that could crash crypto 80% or more.

Well i think it could help to other traders here it is just like the same as  buying low and sell them high but in reverse way  ..
Anyway this could be work in altcoins and bitcoin with good rankings in coinmarketcap.. but for new coin mostly those was starting in high price before its drop if you don't have them bought for low price it useless. But this be work if you can borrow coins like what you said in bitfinex.
But its still the same as buying low and sell high..

Well yes, people have either had large gains or large losses -- that's what happens in massive times of boom and then bust in regard to stock.

But OP I do like the description, I had always spoken about shorting but never actually got involved in it at all. I'll have to bookmark this so I remember the basics about it. While I'm here though, does anyone know any other sites (besides Kraken and Bittrex) which offer shorting to US traders?

Ok thanks you, fill think about)
but for now still thinking that it is to risky for me, but maybe will try on small cash

Shorting is very dangerous tools also for new traders who thinking they could make money on price downing , only proffesionals traders could open short positions and make profit for that . Also if you a knowning good collerations like when btc downing after some time monero and dash going down too u could get on train and open shorts but if u dont known things like that better dont use shorts position.