PSA: Never use perpetual futures for shorting

[mikemolleux3]

When you short, using a perpetual future, your risk/reward looks like this:

* Maximum loss: Infinite
* Maximum gain: 100%

Can you see what's wrong with that risk/reward?

Now look at the risk/reward for longs:

* Maximum loss: 100%
* Maximum gain: Infinite

Much better, right?

Well, it turns out that you can actually recreate the risk/reward of being long, but while being a bear.

It involves buying a put option.

Now your risk/reward looks identical to being long:

* Maximum loss: Max(Premium, 100%)
* Maximum gain: Infinite

That's the power of put options.

I made the mistake of shorting BTC using perpetual futures. I will never do that anymore. I always buy put options now.

If you don't want to pay large premiums (put options can be expensive, I'll give you that), you can buy an everlasting put option. It's really cheap to buy upfront, but you will pay some funding every hour.

Full explanation here: https://blog.everstrike.io/why-you-should-never-short-perpetual-futures/

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[SamReomo]

When you short, using a perpetual future, your risk/reward looks like this:

* Maximum loss: Infinite
* Maximum gain: 100%

I have to disagree with you in that point. Shorting isn't the cause of max loss if your trading skills are good and you know futures trading very well then shorting could give you short term good profits. In order to gain profits in short positions you will have to have an amazing strategy, and a mind that can avoid fear of loss. You should never go with more than 2x leverage and you should also divide the funds for hedging. That way you will earn enough profits and the losses will be minimum to none.

Now look at the risk/reward for longs:

* Maximum loss: 100%
* Maximum gain: Infinite

This one is somewhat right and somewhat wrong. You won't gain infinite profit with the longs. You should also keep in mind that you'll have to pay a funding fee every day. In case of Binance it's 8 hours duration when you will pay funding fee. The exchanges change those fees every once in a while.

Other than that longing also has risks if you are trading a wrong pair. Some altcoins have gone below 100% in past and that means people who have put money into the long positions have lost everything. I remember that thing happened with Terra Luna when many long holders funds have been liquidated during that disaster.

I made the mistake of shorting BTC using perpetual futures. I will never do that anymore. I always buy put options now.

You might have used higher leverage and you might have not divided the funds for hedging. Otherwise, it's possible to earn huge returns with shorting. I have been earning with shorting and I can definitely say that it isn't bad if you know the market conditions.

[Beparanf]

* Maximum loss: Infinite
* Maximum gain: 100%

The article is misleading because it assume that price will go to zero after 1 without considering the 0.00000000x price point as room of gain for shorting. This assumption is only true when trading stops when the price goes immediately from 1 to 0.

This is same on the upper side which long position has the infinite cap.  This is like an asymptote which the price approach to infinity on both side since the token can’t be valued as zero while still listed on exchange.

Also maximum loss is still limited to the capital and not infinite unless you have an infinite source of capital.

[mikemolleux3]

I have to disagree with you in that point. Shorting isn't the cause of max loss if your trading skills are good and you know futures trading very well then shorting could give you short term good profits. In order to gain profits in short positions you will have to have an amazing strategy, and a mind that can avoid fear of loss. You should never go with more than 2x leverage and you should also divide the funds for hedging. That way you will earn enough profits and the losses will be minimum to none.

Problem is, even on 2x leverage, it still only takes a 50% spike to bankrupt you. Yes, you can use stops, but those are prone to stophunts and scamwicks. I'm generally not a fan of hard stops for that reason (I do love dynamic stops).

This is the P/L on a short vs. a put option:

Picture

You'll see that the put option outperforms the short in almost every scenario (higher gain, lower loss).

This one is somewhat right and somewhat wrong. You won't gain infinite profit with the longs. You should also keep in mind that you'll have to pay a funding fee every day. In case of Binance it's 8 hours duration when you will pay funding fee. The exchanges change those fees every once in a while.

Other than that longing also has risks if you are trading a wrong pair. Some altcoins have gone below 100% in past and that means people who have put money into the long positions have lost everything. I remember that thing happened with Terra Luna when many long holders funds have been liquidated during that disaster.

Highly positive funding (0.1%+) changes the risk matrix slightly. and makes shorting more attractive. If you have to short a perpetual future, at least choose one with high funding. Not always easy to find though.

You might have used higher leverage and you might have not divided the funds for hedging. Otherwise, it's possible to earn huge returns with shorting. I have been earning with shorting and I can definitely say that it isn't bad if you know the market conditions.

It's still possible to earn good money when shorting perpetuals, if you know your shit as a trader, but as the blog post says, the risk/reward is inferior to put options. Thats why I only do put options now.

WIth put options you can easily earn 500% on a short. Not possible with perpetuals (unless you use high leverage, which you shouldn't).

[mikemolleux3]

* Maximum loss: Infinite
* Maximum gain: 100%

The article is misleading because it assume that price will go to zero after 1 without considering the 0.00000000x price point as room of gain for shorting. This assumption is only true when trading stops when the price goes immediately from 1 to 0.

This is same on the upper side which long position has the infinite cap.  This is like an asymptote which the price approach to infinity on both side since the token can’t be valued as zero while still listed on exchange.

Also maximum loss is still limited to the capital and not infinite unless you have an infinite source of capital.

Question for you.

If you open an unleveraged short at $100 and the price goes to zero, do you make less than 100%, 100%, or more than 100%?

[virasog]

I made the mistake of shorting BTC using perpetual futures. I will never do that anymore. I always buy put options now.

To be very frank, I do not understand the logic that bitcoin shorts will not be as profitable as bitcoin longs. The risk of liquidation is always there when you take high leverage no matter if you are in the short position or in the long position.

I usually take very low leverage like 2x or 3x in a cross mode due to which i am always far from being liquidated. Although the profit percentage may be less but still i don't feel sleepless after taking the trades 

[logfiles]

This is a problem for people who want to keep positions for long and don't want to take profits but with a proper risk management strategy and a reasonable risk reward ratio. I don't see why it's bad to short perpetual contracts. In fact, short Perpetual contracts is far much easier that longing. Market build up is usually slow while the dumps usually happen faster.

[adaseb]

Shorting always has unlimited risk whether you are trading futures or even margin. It also has unlimited risk if you are trading stocks. The reason why is because when you long the most you can lose is your initial investment but with shorting it can go up forever.

This is how many traders lost money when they shorted massive bull runs. Many lost when shorting altcoins, meme coins and even meme stocks. Look how high GME went up 2 years ago due to that massive short squeeze.

Perpetual futures has nothing to do with this.

[teosanru]

If you look at trading in this way. I will say you are very wrong. You'll be surprised to know that most profitable and always less risky thing to trade is when you Write the options or basically sell the options. Theoretically it's infinitely risky, however, practically it's always used with some stop loss in form of option strategy. You buy a opposite call/ put of a higher value to create a Condor towards Max loss and enjoy the time decay. Similarly even perpetual futures are never traded without stop losses. You always maximize your risk upto your stop loss when deciding about the risk reward ratio of any trade.

[dansus021]

Well do you hear about word said "Dance in the market" some professional trader is do shorting too, and shorting is one of futures benefit rather than a spot market.

and the risk both long and short is same if you have money it always better to do trade in spot market if you think long is way better than short you wrong if you hear luna the coin is near totally zero if you only take a long position when the price is 100$ imagine how much you can lose in currently price probably we liquidate first.

Never use futures trading if we don't know what we are doing I think this the best word hehehe