Cryptocurrency investors or professional cryptocurrency traders who are interested in learning how to sell Bitcoin (BTC) should be warned: Short selling Bitcoin is a high-risk investment strategy. The price of Bitcoin has historically been volatile, and price volatility can be extreme. Their price increases are absolutely amazing. They surprise some of the most up-and-coming cryptocurrency advocates.
When speculators take a short security position, depending on how they do it (find a review of every major short selling investment method and bitcoin trading strategies below), they factor in the high risk of their portfolio. They can lose their entire investment because there is technically no limit to how high the price of a security can be. In the case of Bitcoin, short selling can easily become a strategy to lose money quickly.
Short selling Bitcoin is an advanced trading strategy and includes some smart technical solutions to be implemented.
Read on for our ultimate guide on the basic mechanics of shorting and learning how to short Bitcoin using different methods.
How to sell bitcoin short
When shorting bitcoin, the goal is to sell the cryptocurrency at a high price and buy it back at a lower price. Short sellers aim to sell high and buy low. If they are correct and the price goes down, the bitcoin trader is profiting from the price movement between the time the asset is sold and the time it is repurchased.
Short selling bitcoin is an advanced investment strategy that comes with a high level of risk. However, if you master the skill, you can get huge returns in times of low market value.
The most common way to sell Bitcoin is to sell Bitcoin derivatives such as futures and options. A Contract for Difference (CFD), in which you can pay the difference between the actual price of an asset and the expected price, is another way you can lower the price of Bitcoin. The markets are trading forecasting the outcome of the Bitcoin short-selling events.
Here are some of the risk factors to consider while shorting bitcoin:
- Bitcoin price is volatile
- Bitcoin, as an asset, is risky
- Bitcoin’s regulatory status is still unclear
Bitcoin trading is the way you can speculate on the price movements of the cryptocurrency. While this traditionally involves buying Bitcoin through an exchange, cryptocurrency traders are increasingly using Bitcoin derivatives to make the most of Bitcoin’s volatility.
The different Bitcoin trading styles and strategies are described below:
day trade Bitcoin enables you to get the most out of the daily Bitcoin fluctuations. This means that you will open and close a position within one trading day. Therefore, you will not have any exposure to the Bitcoin market overnight, and you will avoid overnight funding fees on your position.
trend trading Bitcoin means taking a position that corresponds to the current trend.
hedging Bitcoin means mitigating your exposure to risk by taking a position in opposition to the one you already have. For example, if you are concerned about a short-term decrease in the value of the bitcoins you own, you can open a short position on bitcoin using CFDs. If the price of bitcoin falls in the market, the gains on your short position will offset some or all of the losses on the coins you own.
“HODL” Bitcoin strategy involves buying and holding bitcoin. However, you should only buy and hold Bitcoin if you have a positive long-term view of its price. If your research or trading plan says that you should sell your positions to take profit or limit loss, you should automatically set a stop loss to close your positions.
Trading Bitcoin derivatives means that instead of owning Bitcoin outright, you will be speculating on its price using CFDs. Let’s discuss trading options below.
A cryptocurrency margin trading platform is among the easiest ways to sell bitcoin. Margin trading allows you to open a leveraged trading position by borrowing money from the exchange to make a trade. Margin includes leverage or borrowed money, which can increase profits or exacerbate losses. In most cases, the exchange offers loans to traders to expand their capital for use in margin trading.
Many Bitcoin exchanges and brokerages, such as Kraken and Binance, allow margin trading.
In futures trading, the buyer agrees to buy or sell an asset at a future date at a fixed price. Traders usually use them to hedge other investments or to take profits when trading in volatile markets. If you buy a futures contract, you are betting that the price of the security will rise. If you are selling a future contract, this indicates that the price of bitcoin will fall. In this context, you can sell bitcoin by buying contracts betting a lower price of the cryptocurrency.
At the end of 2017, the price of Bitcoin dropped significantly by about 70% during the two months. Since the introduction of bitcoin futures coincided with this market crash, futures trading is said to have caused the market to crash.
Bitcoin futures contracts are available on a variety of platforms. You can sell bitcoin futures on the Chicago Mercantile Exchange (CME), the world’s largest derivatives trading platform, on multiple cryptocurrency exchanges, such as Kraken or BitMEX, and at popular brokerages such as eToro and TD Ameritrade.
Binary options trading
Binary options trading also allows traders to sell bitcoin. You need to execute a sell order through the escrow service, which means that you will be able to sell the coin at today’s price, even if the price drops later.
You predict whether the price of Bitcoin will rise or fall in a certain period of time. If you are correct, you will earn the option bonus; If you are incorrect, you lose your investment. Each Bitcoin binary option also has a specific bonus that you can win.
Binary options trading is available through many external exchanges, but the costs (and risks) are high. One of the advantages of using binary options trading over futures is that you can limit your losses by choosing not to sell your call options. Your losses will be limited to the price you paid for the call options.
The popular cryptocurrency trading platforms for binary options trading are Deribit and OKEx.
Overdraft leverage It means that you can borrow more money from the exchange than you already have to buy the bitcoins you want to sell. It allows the investor to gain more exposure to the investment than he could afford if he had used only available cash.
Leverage increases both the up and down side of the position and the returns on the asset. In addition to increasing the risk, the investor will have to pay the lender to borrow his money. When an investor uses leverage, a certain price increase in his assets will result in greater profits. The same logic applies when the price of an asset falls, causing the investor to realize larger losses. The amount of leverage is measured by a multiple of exposure relative to the equity offered by the investor.
Contracts for Difference (CFDs) are derivative instruments that enable traders to speculate in a wide range of financial markets without taking direct ownership of the underlying asset. Money is paid based on the price differences between the opening and closing prices of the settlement. Bitcoin CFDs are similar to Bitcoin futures in that they are essentially betting on the price of the cryptocurrency. When you buy a CFD that predicts that the price of bitcoin will fall, you are short selling bitcoin.
Unlike bitcoin futures, which have predetermined settlement dates, CFDs have flexible dates. Bitcoin CFDs also do not require physical delivery of cryptocurrencies. Therefore, you do not have to spend on nursery fees. In some Bitcoin CFD markets, traders can enter into a contract based on the performance of Bitcoin or its performance relative to fiat currency or any other cryptocurrency. Cryptocurrencies are traded as pairs against regular currencies.
Predicting markets should also be considered while shorting bitcoin. It allows users to guess the outcome of different events to bet on these events and claim winnings.
One of the strongest points of the Bitcoin prediction markets is that they are decentralized, which means that the results are always accurate, and everyone can confirm them.
Another great thing about the bitcoin prediction markets is that investors can create an event to bet based on the outcome. Therefore, you can predict that Bitcoin will drop by a certain margin or percentage, and if anyone takes you to the bet, you will take profit if that happens.
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