When you think about investing, the assumption is that you earn when the price of an item rises and lose money when it decreases.
However, another more sophisticated strategy is shorting, or short-selling. It involves placing a wager against an asset because you believe its value will decline over time.
The term “shorting” comes from the concept of “going short “ which’s a recognized financial strategy, in traditional finance that proved profitable for Michael Burry during the 2007 subprime mortgage crisis.
Buying low and selling high is the simplest trading technique. Shorting is almost exactly the reverse of this, where you are betting on a price decline and making money from it; often, you do this by utilizing leverage or a certain type of trading contract to increase your gains.
When you go short on something, you are betting that its value will decline and you are positioning yourself to profit from that loss by using different derivatives and instruments available on the market. With an example, it is simpler to understand.
For example, You borrow one Bitcoin and short sell it for $20,000. Subsequently, Bitcoin falls to $18,000 in price. This was what you anticipated. Instead of paying $20,000, you now buy BTC again for $18,000 and repay the BTC you borrowed. You've made $2,000 by pocketing the difference even though the price of Bitcoin has dropped.
However, it is important to realize that shorting any kind of asset—including cryptocurrencies—is a risky trading tactic that may go wrong before you know it. Even though shorting can yield rapid returns, it also needs in-depth understanding of derivatives and the markets.
There are different trades that allow you to short crypto, including:
Futures trading
Margin trading
Options trading
Prediction markets
CFDs
Leveraged tokens
They all work a little differently, but you can Learn more on How to Short Cryptocurrencies Safely at Altrady!
Theoretically, you can short cryptocurrency without using leverage or additional trading contracts; your earnings, however, won't be as large. Due to the possibility of large profits, shorting cryptocurrency makes the most sense. Enormous benefits, as usual, come with enormous risks. Always DYOR, ensure that you are aware of the possibility of losses, and only invest money that you can afford to lose.
Pro tip: Short selling can potentially lead to faster profits compared to buying, as market downturns often occur more swiftly than upward trends.
The most obvious risk whenever you deal with leverage or trade that bets on a future outcome is that you make a mistake in your wager and the price rises, leaving you out of cash. Furthermore, when you use leverage, your losses will also be multiplied in the same way as your winnings. Find more details about Altrady, the safest crypto trading platform!
Cryptocurrency shorting is inherently quite risky. In contrast to "long" trades, in which you expect an asset's price to increase, shorting necessitates debt. You may find it difficult to pay back these loans if you are careless. Additionally, the exchange might liquidate your position to recoup their investment if the market goes against you, leaving you with less than you started with.
While shorting cryptocurrency is a complicated technique, it may yield some immediate rewards. Because cryptocurrencies are such volatile assets, experts advise most individuals to stay away from short selling.
