How to go short: Making profit by shorting Bitcoin and other cryptocurrencies

Shorting a coin is basically betting against the coin, when you buy a coin then you are expecting for the price to go up and that is the way you make profit, but when you short a coin you are expecting for the price to go down instead of up that way you can make money when the price goes to the opposite direction and for those with great skill is a way to make some good money. The most of the cryptocurrencies speculation occurs through long and short positions across trading platforms. The easiest way to go short on different coins is to sell cryptocurrency at a price you feel comfortable at, wait until the price drops, and buy that cryptocurrency again. It is also very important to find the right broker or exchange that offer margin trading and have great liquidity. There are only a handful of exchanges that allow shorting and have good liquidity. The major difference between brokers and cryptocurrency exchanges is that with brokers you are actually trading a CFD(Contract For Difference), most of the time. On the cryptocurrency exchanges, traders and investors can really buy cryptocurrencies. Trading on an exchange grants you ownership of the coin and you can transfer it to an address (your own wallet).

There are various different ways that traders can ‘go short’ and one of the most common ways is by using a cryptocurrency margin trading platform. Traders/investors have to join a platform that allows margin trading and deposit some bitcoin or whatever coin they want to short into their account as collateral. Traders should keep in mind that margin trading can generate much larger losses than traditional trading. It’s not a good idea to hold a short position for long periods of time or to leave an open short position with no stop-loss order. Below is a brief list of ways to short cryptocurrencies (this can be applied to different coins):

  • Traders can sell cryptocurrencies in the hope of buying them back later at a cheaper price (the easiest way). Although this is how most “traditional” traders make money, it is an efficient way of shorting cryptocurrencies.
  • Futures contracts – this contract is a very good way to short cryptocurrencies. This contract allows buying a cryptocurrency at a future date and a fixed price. The trader buying a futures contract thinks the price for example, per Bitcoin, will go up and he will be able to purchase Bitcoin below the market price when the contract “expires”.
  • Options contracts – traders can place a bet that the value of some cryptocurrency will be lower than a particular value at a certain point in the future (for example 1 day, or 1 week). A fall in cryptocurrency value will earn a profit, which is exactly what shorting is all about
  • Binary options – traders can place a bet that the value of some cryptocurrency will be lower, usually measured in hours with the end of that day. Traders looking to short some cryptocurrency would execute a PUT order. If the price at the expiration time is lower than the original price, you earn the option’s payout. This is trading with a very high risk because you will lose everything if you are incorrect.

The example of shorting a Bitcoin

BTC has made a very big jump in the small time period and according to Elliott wave theory, this could be the beginning of the wave 4 ( corrective phase). A number of reasons have pushed Bitcoin to record highs, such as legalization of the currency in Japan for payments, boosted interest from Korea, as well as the conclusion of a debate about the future of the cryptocurrency. The price of Bitcoin on 04.09.2017 was $4,316 and my opinion was that this coin was overpriced and I sold it. The easiest way to go short on different coins is to sell cryptocurrency at a price you feel comfortable at, wait until the price drops, and buy that cryptocurrency again. When we take look at this 12 months chart we can see that major trend is “bullish” (uptrend). As long the price is above this trend line there is no indication of the long trend reversal and BTC is in the BUY zone (Big Investors are still in the long – BUY position on this crypto).

Recommendation: If the price falls at $3000, this could be a good position for the traders ( stop loss at $2900 and take profit at $3500). Traders can sell cryptocurrencies in the hope of buying them back later at a cheaper price. Buy low and sell high is the most efficient way to publicly short Bitcoin and try to persuade other traders to do so as well.

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