Shorting Crypto – Beginner’s How-to Guide

[CSquared Collective]

Shorting or to short is trading parlance for taking a position in something with a view that its price will go down (it is the opposite of going long). Going long is simple, one just has to buy the asset and hold it. Going short is simple conceptually, but it a bit more complicated to execute.

In trading stocks, the most common way to short a stock (profiting if the price goes down) is to have a margin account at a brokerage. A margin account means that brokerage will loan you money or assets. When you have margin activated and short a stock, it might look seamless, but what’s happening behind the scene is that 1) brokerage lends you shares of the stock; 2) you sell them in the market. When you buy them back later (hopefully at a lower price), you return the shares back to the brokerage and keep the profit.

Before we discuss how you can do this in the crypto world, a warning on the dangers of shorting. When you go long, buying an asset at a price, the most you can lose is the entire amount that you’ve paid. This is NOT the case when shorting. When you short, you make money when price drops and lose money when price goes up. The most you can make is 100% of the trade amount (as price goes to zero), but the amount you can lose is UNLIMITED. For example, if you short an altcoin at $1 after it has risen from $0.0001. But instead of dropping in price, the price goes to $100. You now have lost 100x of your trade amount. If you shorted 1000 coins at $1, now you have a loss of $1000 x 100 = $100,000. Of course, most trading venues would have internal triggers that will likely liquidate or close your position before that (as you run out of money in the account). But just a warning conceptually of the danger (safest to always set a stop order to exit the position when it really goes against you).

Now, back to show to do this in the crypto world – several methods:

1)   Same as in stocks, you can find an exchange/platform that allows margin (e.g., Binance). They will allow you to borrow various tokens (against collateral that you deposit), which you can then sell, buy back later, and return the tokens.

2)   Futures – several exchanges offer futures trading on various tokens. Futures are a form of linear derivative on the underlying token. Futures allows one to easily go short (and long) without the process of borrowing. It is a simpler process but you might have fewer token choices available to you.

3)   Options – some exchanges also offer options on tokens. Calls and puts are non-linear derivatives. When you buy a put on a token you are effective going short. However, other factors go into pricing and price movement of a put – time to expiry, volatility, etc. Be sure that you understand them before trading.

4)   Contract For Difference (CFD) – is another way, popular in some jurisdictions. It is not legal in the U.S.

Hope this helps anyone new to shorting. Looking forward to comments and good luck trading!

[Charles-Tim]

Going long is simple, one just has to buy the asset and hold it. Going short is simple conceptually, but it a bit more complicated to execute.

There is nothing complicated about going long or going short but most newbie traders always fear to go short, they prefer going long always until they become Pro and know more about how to analyze the market.

Going long is more and common used for leverage trading, not holding.

In trading stocks, the most common way to short a stock (profiting if the price goes down) is to have a margin account at a brokerage. A margin account means that brokerage will loan you money or assets. When you have margin activated and short a stock, it might look seamless, but what’s happening behind the scene is that 1) brokerage lends you shares of the stock; 2) you sell them in the market. When you buy them back later (hopefully at a lower price), you return the shares back to the brokerage and keep the profit.

I think it will be perfect to use cryptocurrencies and crypto exchanges than using stocks and brokers. Also know that not all the profit will be given to the trader, there is certian amount that exchanges will deduct from the gain, this amount is paid to lenders on the exchange as a profit of the coin they lend out.

Before we discuss how you can do this in the crypto world, a warning on the dangers of shorting. When you go long, buying an asset at a price, the most you can lose is the entire amount that you’ve paid. This is NOT the case when shorting. When you short, you make money when price drops and lose money when price goes up. The most you can make is 100% of the trade amount (as price goes to zero), but the amount you can lose is UNLIMITED

The amount someone can lose if someone go long or short is limited, it is the amount you use to trade. The gain is not 100%, it can even be over 1000% less or more. Remember as price drop to $1, it can even drop to $0.1 or even drop more to $0.001 or even drop more. What matters most is trading volume and liquidity rate not price dropping to 0.

Of course, most trading venues would have internal triggers that will likely liquidate or close your position before that (as you run out of money in the account). But just a warning conceptually of the danger (safest to always set a stop order to exit the position when it really goes against you).

After 80% of the money has been liquidated, most exchanges if not all, will send you a notification message. If you use isolated margin, you will not be able to transfer collateral into your trading account and the all the money will be liquidated. But in cross margin trading, you can still be able to transfer collateral into your trading account in a way the liquidity price will get farther. In addition to the best advice is to make use of lower leverage, I think 5x is good but you will see some people using 100x or even 125x, how would the money not be liquidated. Also you can even go long or short on some exchanges with your real funds without borrow, this is the safest as it seems more like spot trading, but in a way you can still go short.

[odolvlobo]

The concept of short-selling is simple.

You sell now when the price is high and you buy later when the price is low. But in order to sell shares before you have any to sell, you must borrow them first.

There are two downsides to shorting:

• 1. The price can only fall to 0, so your profit is limited. But the price can rise forever, so your losses can be unlimited.
• 2. You must pay interest on the shares that you borrow. You can lose money if you gains are less than the interest you must pay.

[SquirrelJulietGarden]

Short is different than sell. Newbies misunderstand short and sell. Short (Short position). Short positions are for short term. If you open a short position, you have to know how long you can let it opens and be safe.

If you let your short positions open longer than it should be, the market will move to a new phase, and your short position will likely be liquidated. This open window will be decided by market short term trend, your leverage, and the candle you use.

[Charles-Tim]

Short is different than sell. Newbies misunderstand short and sell. Short (Short position). Short positions are for short term. If you open a short position, you have to know how long you can let it opens and be safe.

Short is not necessary for a short or long term, also long position is not necessary for a short or long term, it depends on what you analyzed and speculated, it also depends on the leverage used, you may decide to trade future and not use leverage to minimize risk to a greater extent. In margin trading, short simply means sell while long simply means buy.

[rhomelmabini]

Short is different than sell. Newbies misunderstand short and sell. Short (Short position). Short positions are for short term. If you open a short position, you have to know how long you can let it opens and be safe.

If you let your short positions open longer than it should be, the market will move to a new phase, and your short position will likely be liquidated. This open window will be decided by market short term trend, your leverage, and the candle you use.

That isn't the case to be honest you can open a short position as long as how far you can hold it or unless it isn't liquidated by the market. I think what you want to emphasize was shorting comes only quicker rather than if you're longing, that isn't the case as well because if the coin/token or even the whole crypto space crumbles max pain is it could even take -90% from it's ATH (it has been seen in 2017-2018 market cycle).

[Lafu]

Thanks for posting this. Im a total newb here. Every little helps! 

The best way to learn is firstly read a lot here on the Forum , but dont trust anything you read !
Mostly you get some nice help if you have some questions when you write and ask .
But reading is the most helpful things here when you are Newbie and new to crypto.
And watch out when you click any links here when you want to download something , check them a few times .