The volatility of cryptocurrency is the most important characteristic of this asset for traders and investors. Bitcoin and other coins can fluctuate several times a day, giving exchange members a constant chance of making a profit. There are several options to gamble on fluctuations in the value of the cryptocurrency, one of which is shorting.

Let's find out what is shorting crypto, how to short on exchanges and make money on short sales, what are the exposure of this market and how to avoid them.

What is shorting crypto?

Unlike a Selling Long strategy (or going long), a trader using short positions makes money not on the growth in the assets, but on their fall. To open a short position on an exchange means to borrow crypto and sell it at the current price. Any rated crypto exchange that allows shorting provides traders with several levels of debt above the available balance in the account.When the value falls, the trader buys the assets again, repays the debt, and profits from the difference in the purchase and selling price.

Since price reductions on cryptocurrency exchanges are inevitable, your aim is to anticipate the fall and make the transaction in one cryptocurrency against another  in time. Other market participants lend to traders and receive a certain interest for this. The amount of interest depends on the term of the loan. On some exchanges, the loan process is automated and has fixed settings.

Gambling on the fall of crypto using only your intuition is an unnecessary risk. Traders should analyze the market and act only on the results of their research. Experienced participants know how to identify the periods when it is most profitable to open a deal and avoid taking risks without reasonable hope of success.

How to short sell bitcoin and other cryptocurrencies?

When using short positions, you should remember the basic rule - even if the value of the asset halves, you will not earn more than 50%, but if the price doubles, your losses will be 100%. Before shorting a position, study all influencing factors and check the informational background to see if any sharp rate increases are expected soon. Plus, many experienced traders when shorting, for fast transactions and minimize losses, use exchange bots, one of which is CryptoHopper.

There are several ways to short:

Margin crypto trading. You borrow assets from a third party (broker) and make an exchange believing that your bet will pay off. Many crypto exchanges offer margin trades - Binance, Bitmex, and others.

Futures. Derivative contracts are contracts in which one party agrees to pay another a predetermined amount at some point in time. Thus, you acquire the right to buy a bitcoin or other crypto at a specified price in the future.

Betting markets. Some platforms allow you to make projections on value changes and earn income if your expectations are correct.

The most common method of shorting is margin trading on the exchange. This strategy allows the trader to use more money than he has at the moment. Accordingly, the potential profit will be higher than if he used an actual balance.

Specifics and risks of short selling 

Most short trades on cryptocurrency exchanges are in BTC-dollar and ETH-dollar pairs. This makes sense, as these coins are in constant demand on the market. However, if you already have some experience in trading, you can use other assets - preferably those that are in stock trends. Experts advise making 40 per cent of transactions in BTC, 40 per cent in etherium, 20 per cent to invest in new ambitious currencies and another 20 per cent of the bank keep in dollars or euros. Don't get too carried away with small altcoins - demand for them can drop to zero. If you do not have more than 20% of these assets in your portfolio, you will recover your losses with traditional instruments.

A few universal recommendations to minimize risks for novice traders:

Work only with reliable exchanges that have been on the market for many years. Study the reviews of the platform before depositing funds.

Do not invest more than a certain percentage of capital in a single position, even if the trade seems safe to you.

Buy crypto, only after a thorough analysis of the situation - do not make decisions based on emotions or dubious forecasts.

Shorting large amounts without experience is a dangerous idea, especially with little-known and new altcoins.

Don't wait for the perfect price for too long - remember that you will have to pay for using borrowed funds.

Pretty detailed and clear instructions on shorting techniques are available on the exchanges - be sure to study the introductory information and calculate all the risks before moving on to real trades and to shorting crypto for hedging or for speculation.

Conclusion 

Shorting cryptocurrency turns the basic rule of trading "buy cheaper, sell higher" upside down. In shorting, a trader first sells it at a higher price and then buys it back cheaper. He makes a profit on the difference in price because the debt is repaid at the current value.

Trading short positions require an understanding of the market and an ability to predict the behaviour of the exchange rate. Before you start short-selling, you should learn how to manage risk and try your hand at simpler, more reliable trades, otherwise it could lead to maximum exposure on every trade.