Know your customer (KYC) means proving who you are, usually with official ID and proof of address. Not all of our platforms require this, but it is to help with strict anti-money laundering rules. Most platforms also implement counter-terrorist financing programs and comply with data protection regulations where applicable. Let’s say Ethereum is trading at $1.5K and you buy a put option that gives you the right to sell $ETH at $1.4K within one month. If the price rises instead, you’ll lose money because the crypto you have to buy is now more expensive than when you sold it.

Step 1: Choose a Platform That Supports Crypto Shorting

The legality of shorting cryptocurrency varies by jurisdiction and method. While the practice is generally legal in most countries, specific restrictions may apply to certain trading products or platforms. For instance, while US residents can legally short crypto through regulated futures markets, they cannot trade CFDs or access many international platforms’ leveraged trading features.

How to short cryptocurrency on the exchange

We cover BTC news related to bitcoin exchanges, bitcoin mining and price forecasts for various cryptocurrencies. You can short crypto on most centralized exchanges, like Binance or Margex, or via decentralized exchanges such as Aave. On-chain data trackers are a natural extension of technical analysis indicators.

For example, with 5x leverage, a $1,000 deposit lets you short $5,000 worth of cryptocurrency. This leverage can significantly amplify your potential returns, but it also increases your risk exposure proportionally. The preparation process for shorting crypto involves several key components. First, traders must conduct thorough market research, analyzing both technical indicators and fundamental factors that might influence price movements. This research should include studying historical price patterns, understanding market sentiment, and monitoring relevant news events.

• Inverted ETPs (Exchange-Traded Products) are exchange traded instruments that allow you to capitalize on a drop in the price of a cryptocurrency without the need for leverage or futures.
• Keep in mind that this index can only give you an idea of the market’s current perception and is not a tool for making investment decisions3.
• This is up from 27% in 2023, highlighting growing interest in bearish trading tools.
• You should also have the capital to recover from the loss if you’re shorting position doesn’t pan out.

Options trading

• It involves borrowing funds or assets from a broker or exchange to execute a trade that you would not be able to afford with your own capital alone.
• The profit potential, in this case, is limited as the price cannot go lower than zero, but the flip side is that the price could continue rising exponentially, exacerbating your losses.
• To profit from this knowledge, you borrow 1 BTC from an exchange and sell it for $60,000.
• One of the advantages of using binary options trading over futures is that you can limit your losses by choosing not to execute your options.
• The entire process is more complex than this, hence, we highly advise you to watch an explanatory video below as well.

You may encounter trading fees charged by the exchange for opening and closing your position. Additionally, you may come across funding rates, which are periodic payments between short and long holders. These fees, if trading frequently or holding shorts during periods of negative funding rates, can add up quickly, thus significantly reducing profits if not monitored. Despite its advanced features, white label payment gateway getting started cryptocurrency trading Bybit’s core strength lies in its accessible interface. It’s easy to navigate, and its design bridges the gap, making sophisticated tools approachable for those learning while providing the depth for professional traders.

Should You Short Sell Bitcoin?

Additionally, they must pay a funding rate of 0.01% every 8 hours, based on the difference between the contract price and the spot price of Bitcoin. Though this strategy might not appeal to all investors, those with the stomach can reap gains if their bet against Bitcoin pricing succeeds. If your brokerage or exchange allows it, you could borrow some Bitcoin and sell them at a price you are comfortable with. Of course, if the price does not adjust as you expect, you could lose money in the process. In both cases, you profit when Bitcoin’s price falls below the strike price before the option expires. CFDs (contracts for differences) are a type of derivative that allows you to trade the price of Bitcoin without actually owning it.

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This allows users to follow and replicate the strategies of experienced traders – perfect if you’re just starting out. The MEXC mobile app enables short selling and monitoring on the go and is user-friendly, catering to both new and experienced traders. The real-time data and charting tools help in technical analysis for short-selling decisions. Liquidity is key to closing short positions without significant slippage. This is the difference between the price you expected to enter or exit your trade at and the actual price your order executed.

For example, Bitcoin futures mimic spot price changes, meaning they cannot be used as an effective hedge against an investment in actual Bitcoin. Similarly, options trading in Bitcoin can multiply losses due to the underlying cryptocurrency’s price volatility. Inverse exchange-traded products (ETPs) are instruments that use leverage and other techniques to flip the returns an underlying asset generates. They are similar to futures contracts and are used in conjunction with other derivatives to produce returns. For a full overview, check our comprehensive guide on how to invest in cryptocurrency.

In the case of shorting a Bitcoin ETF, you would be agreeing to sell the ETF’s shares at a specified price on a specified date. Coinbase does not offer margin trading, which is another way to short crypto. To short a cryptocurrency on Coinbase, you will need to open a futures contract.

What is the difference between a crypto exchange and a brokerage?

Selecting an appropriate trading platform is crucial for successful crypto shorting. The 11 emerging cybersecurity trends in 2021 best platforms offer a combination of robust security features, competitive fees, and reliable execution. When evaluating exchanges, consider factors such as trading volume, available leverage options, margin rates, and the range of supported cryptocurrencies.

The data used to conduct this analysis includes the historical performance of an asset. For example, if you are analyzing Bitcoin, you can look at the current trading volumes and compare that to future volumes. For example, the stop-limit order, which is one of the most popular order types, allows you to trade derivatives in a way that will limit your losses. It allows you to choose the risk you are willing to take by your investment. To trade Bitcoin CFDs, you are required to deposit a section of the funds on your trading account.

Platforms like Oriole Insights provide valuable community-driven data that can supplement your analysis, offering insights into collective market sentiment and potential price trends. Successfully shorting cryptocurrency requires careful preparation and a thorough understanding of market mechanics. Before placing your first short trade, you need to develop a comprehensive trading plan that accounts for various market scenarios and risk factors.

This is up from 27% in 2023, highlighting growing interest in bearish trading tools. According to CoinGecko, Bitcoin’s average intraday volatility stood at 4.2% in Q — making it an attractive target for short-sell setups. In the example below, Trader A longs a futures contract, with ETH as the underlying asset, at a set price of $1,300.

However, since we are leveraged 5x, the true profit here would be $2,000 x 5, or $10,000. We must subtract the funding rate from this profit, but the figure is very small. Many retail trading platforms (including tastytrade) offer the benefits of video marketing for a cryptocurrency exchange access to Chicago Mercantile Exchange (CME) products.