Bitcoin Forum

I haven't posted on this board so far, so for those that don't know me, I'm a newbie, and as green as can be expected. I've been trying to learn as much as I can, watching videos, and reading anything I can get my hands on. As of late, I watched a video on short selling a gazillion times, but I just can't wrap my mind around it. It just doesn't make any sense to me.

So here's what I know (or I think I know):

Short selling is betting that an asset is gonna go down in price.
You have the certainty a given asset is gonna drop, so you borrow that asset, sell it high, wait for it to drop, and then buy it back low and give it back. Great. Except it doesn't make any sense.

Let's see. For example, BTC is now scraping 45K. You got tipped that's gonna go down to 30K tomorrow. So...

Scenario #1

You borrow 1 BTC. Both the lender and the exchange charge you a fee for it. You do your thing, and you get a good chunk of money in return.
But what if BTC doesn't go down? You need to have enough money in your account, so as to pay the BTC back, plus the fees, plus some extra cash in case BTC goes up. If it gets yo the point that you're not gonna be able to cover your obligation, you'll get margin called.

Scenario #2

You do have the money already in your account, so you liquidate your BTC if you have it, and wait. When BTC does go down, you buy it cheap, and get the same profit you got on scenario #1, plus the fees you don't have to pay. 

Scenario # 3

This is the only scenario that would make any sense to me:
The lender agrees to share the risk (meaning he agrees to get less money than he lent you, in case things go south). That's the only way I can see this would work (not for the lender, though), and only if the top price the borrower has to pay (including fees) is less than the value of the BTC he starts with.

So, how does it work? The way I see it, scenario #1 doesn't make any sense, scenario #2 is not short selling, and the only one that makes sense (to a point) is scenario #3. That is, if the lender is willing to share the risk with you (I personally wouldn't consider it).

Now, I'm pretty sure I'm missing something, and I'm pretty sure itś dangling right in front of my nose, and I'm gonna feel like an idiot when yoou guys tell me. But, How does it work?

Thank you all in advance.  :)

 Unlike spot trading, in futures trading you can sell a coin you do not own. This process is called shorting. Shorting is simply betting against the coin. In longing, we bet that the coin will go up, in shorting, we bet that it will go down.

Apart from the fact that we click sell instead of buy, there is no difference in the technicalities involved in selling/shorting.

NOTE:- • Closing a sell/short trade manually is the same as in buying/long.
 When already in a trade, you can adjust your leverage and also change your stop loss and take profit still in the positions tab anytime by clicking on
them.

Hope this will help.

Nope. I'm starting to think I know even less than I thought I knew.
Does that mean you can trade with no money at all?

You do realize you can't borrow without any collateral, right?

When things don't go as planned. Your collateral goes to the lender. Now think about the first scenario but with the collateral in mind.

Scenario 2 and 3 don't make any sense, or maybe I didn't get your point?
Also read about bankruptcy of a position, Auto Deleveraging and how Insurance Funds takes care of it

Here's a guide for you to know about shorting (short selling) https://academy.binance.com/en/articles/what-is-shorting-in-the-financial-markets. Shorting doesn't always needs to borrow funds from the market you can even do it on spot trades like you sold your BTC at 40k to buy at a later lower price at 35k, that was still a short position. I think you're way having too many thoughts about scenario that doesn't add up, shorting even at spot trades or margin/futures trades you need to have money at all. At margin or futures trade you need collateral of a certain asset to start your short position.

What if you buy Bitcoin in the hopes that the price would rise further and it crashes down, you lose your capital, except you are willing to hold long term and hope the price increases. There is risk to any investment and always the possibility that things do not go the way it was planned.

Now shorting a currency does not always have to be on a loan, someone who holds Bitcoin now and feels it would drop further from this point can short it by selling now, to buy back at a lower price, same way you long s currency by buying now, to sell at a later time when it is expected to be higher in value.

Thank you all for the replies. :)
Now I know shorting is a much wider term than I thought, and I definitely have to learn a whole lot more on it.
Thanks Rhomelmabini for that link, I'm gonna keep reading on it.

And OP you have to know that when talking about borrowing in this business of online trading you are talking about leverage. You need to study more on leverage, equity, balance etc below
https://i.imgur.com/3qbpp40.png

Leverage is going to be activated or set by you depending on your risk that you desire to take. The higher your leverage you are using then the higher your risk and chances of being knock out of your balance.

Short selling is sell, short or bear and that is when you analyse or predict that price will drop, you go on sell order.
Long selling is buy, long or bull and that is if you analyse or predict that price will increase, you click for buy order. I wish you the best you are on your journey.

@BernyJB

Based on what you have written, I am pretty sure that you are getting the gist of what "short selling is".

Scenario 1 pretty much sums up the concept of Short Selling, but with the addition of what we call the "Margin," which raises the question of how a person who has an open short position and his trade goes south will be able to buy back that particular financial instrument for more money than what is in his account because he simply borrowed it in an exchange. This is where the initial margin comes in, which acts as collateral to ensure that you really can afford to buy the crypto/stock back in the future. This collateral, however, is vulnerable to a process known as "margin call," in which your collateral is emptied if your account cannot handle any further losses (the prices keeps going up).

In other words, you need to have an initial margin of BTC(or any other crypto) or Stablecoin(e.g., USDT, BUSD) for you to be able to open a short position especially in Futures or Margin Trading. I would recommend that in order for your understand this further, you need to at least try a 1 dollar trade in Perpetual Swaps Futures while closely monitoring your PnL, Initial Margin, and your overall capital to see a concrete example for yourself.

I would assume that you are talking about shorting in Spot Trading and not in Futures/Margin Trading here. Selling at a higher price and buying back at a lower price even without having an initial margin can still be considered as "Shorting" in a traditional market like Spot Trading because you are still covering your short to be able gain back your initial capital plus the extras which you have gained for buying back at a lower price which is your profit.

Thank you. You think? I feel like I don't have the first clue about it.  :(


You should assume I don't know what the hell I'm talking about. ;D
Every time I learn something new, a new gazillion of things I don't know open up. I followed 5 courses on crypto already, and I feel I'm just getting started. This whole thing is humongous...

Thats why its name Futures Trading . you trading for the " Future " ( in next few minutes also consider as futures ) and its using leverage or simply like buying power lets say you capital was $400 and you using 100x leverage thats mean you had buying power or up to $40k that $400 you had as collateral . but with that high leverage you can easily lose all your collateral. your liquidation price will very close to your entry order.

No, brother Short selling is very dangerous. You are talking about futures trading. Futures trading is very risky because if our trade goes wrong with the market direction then it can liquidate our loss. And on every hours they deduct interest, if you hold a position. My account liquidate many times in futures trading. So, i did not advise anyone to trade in futures market. I prefer you to trade on spot market. If your holding coins are in loss then hold it with patience and wait for price pump.

Short selling is not game for normal traders. Whatever you may feel about this statement but history is proof for this. In that also crypto short selling is worst spice you can add into your recipe! Meaning crypto currency’s are already way way volatile and thus it may happen that before you could even short sell your assets you would be in so much dip that you would loose all of your money at once. There won’t be anything left for you to buy again at low and thus no coming back from this lost trailing. So it’s always for those who are way rich and move the market as per their needs.

Short selling always bring little Profit to traders at the end of the market.Those traders  into short term exchange are trying to change their strategies to long term exchange, so that it will be easy for them to use their loan to make more money from their trade before returning the money back to the owner.
Crypto traders will not allow such mistakes to happen again in this 2022 than to go for long selling strategy which will really help them to monitor the coin price very well before releasing them for sale to make a good profit.

In futures, you just got to have USDT in order to trade many coins as you want. How will you get USDT? You can use your Bitcoin to buy USDT, after that transfer it to your futures account (correct me if I'm wrong). How does it work? For example, you want to trade BNB/USDT, you predicted it is going to dump so you enter a short trade, but it didn't, so you will be liquidated depending on the leverage you put and the margin you chose (either Cross or Isolated).

Your liquidation price will also depends on your funds as well, usually bigger funds go with cross margin while smaller funds goes with isolated margin.

I will totally disagree with you indecencies that you are full member not even an ordinary member, for you to become a full member you have possessed 140 activities which is approximately six months, so you are not a newbie

Yes, i support you via learning on your own and this will give you much insight to learn more, watching videos and making other research will activate you level of notifying your error.

I'm kinda happy that I use binance for leverage trading since I can't go over 10x. For me short trading is where the money is, since not much people short the market.

Who told you that not so many people short the market, do you have any stats to prove this info?
Because as a far as I know, shorting seems to be far much easier than longing. That what my trading history and a couple of traders I have interacted with tell me.

With scenario 3 you already have in mind about what that philosopher believed about nothing being an absolute that it can't be doubted. I like that mindset too. Trading, to the best of my knowledge, is a speculative engagement. So, why should anyone be too certain that their bets would go in their favour. However, I wouldn't like a situation where I want to bridge the risk with someone else coming into it to up the stake. I rather risk it with the little I've than get someone to come in as a source of encouragement. Instead of risking 1 whole BTC with the lender's involvement, I rather go for 0.5 BTC alone.

I'm more familiar with your scenario 2. That's the way I roll. It saves stress.

true, shorting is more easier than longing because all the key levels of shorting is so easy to determine than trading for long position.
Infact even my favorite traders, most of their gains came from trading short. So i don't believe as well that there's not enough people shorting in the market. ;D

Thank you everybody for the replies.
For the record, it's not that I feel any way about shorting, I'm just testing the waters. The explanation I had didn't make sense to me, now I know the whole thing is much bigger and more complex than I thought.


And then I was convinced there was nobody crazier than me... ;D ;D ;D
In any case, I registered on October 28^th, so that'd make it a bit over 4 months. And the more I learn, the more I feel I'm just scratching the very surface of the thing...


Thank you. It'd probably be easier if I had some previous knowledge on another form of trading, like stocks or forex, but I'm literally new to the whole thing. Up until mid October I was convinced crypto was a "scam"...

Both shorting and longing are risky. While there is a possibility of making good gains, there is also a high risk of making losses. The observation I noticed which made me think shorting is easier is because of the market movements when a price and asset is rising vs plunging.

When the price is usually rising, it takes a while to build up, and it rarely spikes up in a short time while when the price is plunging. It's often quick and drops so much in a short time.

When you do know on how to play with price or market volatility then you would be definitely be able to play with the current price movements on which you could really make profits in short time
on doing short trades or day trades but we know that this isnt for everybody on which you would really be needing sufficient skills and knowledge before you could able to handle volatility well.
Success will depend or vary on how well you do handle it out so it is very situational.

Even though you can make quick profits, many people still avoid doing short selling or short term trades for some reason like they can say that it's risky and takes a lot of monitoring, something like that, which is why a lot of them still sticks with investing however in investing, knowledge on how market volatility work is still needed so that we can buy and sell on the right time.

In terms of success yeah, some think they are successful already once they can make a simple profit through shorter-term trades but I think to the rest of us, we measure success once we earn a huge amount of cash or if we successfully sell and make a profit after a long term of holding.

The only reason why people are doing all of that risky trading is the fact that there are a lot of profits to be made from those things. It has a lot more potential. Making 2x is a big and lucky thing in long term investment or spot trading, doing 2x profit on high leveraged short futures is not a big deal at all. This is why I believe that people are not really doing it because they believe it will work, they are just gambling.

So, there are a lot of people who are throwing money at these high risk high reward ratio investments and if it doesn't work then it doesn't work, but the reward is so high that you can try up to 20+ times before you can hit one and still be in profit.