Investors who believe that cryptocurrency is going to crash at some point in the future can find shorting an appropriate option. It offers numerous venues and ways to short cryptocurrency as it is rising to the spotlight of the financial mainstream. This blog is the answer to the question: can you short crypto?
Ways To Short Cryptocurrency
You can short cryptocurrency in a variety of ways:
You can use the cryptocurrency margin trading platform to short it. Several exchanges and brokerages allow this type of crypto trading. This way, margin trades allow investors to borrow money from the broker to make a trade. It is significant to know that margin constitutes leverage or borrowed money. It helps in increasing profits and exacerbating losses. Some exchanges allow margin trading at this stage.
Cryptocurrency has a futures market. In this market, the buyers agree to buy a security with a contract. This specifies when and at what price the security will be sold. If you purchase a futures contract, you can assure the rise in the price of the security. This way, you can ensure to get a good deal afterward. Selling a futures contract suggests a bearish mindset and prediction of a decline in the price of the cryptocurrency.
At the end of 2017, the future trade of cryptocurrency took off around the run-up in the prices.
Binary Option Trading
You can short cryptocurrency like Bitcoin with the help of call and put options. For shorting the currency, you need to put the currency using escrow services. You can aim to sell the currency at today’s price even if there is a drop in the price later on.
Binary options are available through multiple offshore exchanges. However, it incurs higher costs and risks. The advantage of using this trading over the future is that you can decrease your losses by not selling the put options. It means that the losses are lower than the price you paid for the put options.
Prediction Market is yet another way you can use to short cryptocurrency. These crypto markets are similar to those in the mainstream market. It enables the investors in making the event to make a wager based on the results. This way, they can effortlessly predict the decline of the currency by a specific margin or percentage. Moreover, if anyone takes you up on a bet, you could stand to profit if it comes to pass.
Short-Selling Crypto Assets
Although investors do not find this strategy a lot more appealing, those who have an interest in it can effortlessly yield profit after acquiring success in the cryptocurrency bet. You can do this by selling off the tokens at a price you are comfortable with, waiting for the price to drop, and then purchasing another token again. You might lose money or asset when the price is not adjusted the way you have expected.
You should know that short-selling crypto assets have specific risks and costs too. You might, for instance, pay the custody or crypto wallet fees to store the cryptocurrency until the trade happens. You might also bear the risk of its volatile nature. You might face loss when there is a rise in the price. You can even use exchanges that offer leverage for conducting such trades. But you need to take care as if could magnify gains or losses.
A contract for difference or CFDs is a financial strategy that pays out the money based on the differences in the prices between the open and closing prices for settlement. It is similar to future trades since they are essentially a bet on the prices of cryptocurrency. When you purchase CFDs with the expectation of a decline in the price, you are eventually shorting.
Unlike futures that have predetermined settlement dates, they tend to have a more flexible settlement future. In this, you also do not require physical delivery of cryptocurrency, thereby eliminating custody charges.
Using Inverse Exchange-Traded Products
These are bets that an underlying asset’s price will decline. They are similar to futures contracts and use them in conjunction with other derivatives so as to produce returns.
These technical ways help you to short cryptocurrency effortlessly.