Shorting Bitcoin is a concept every crypto enthusiast needs to be familiar with. As a new crypto investor, you can have a better experience of buying crypto if you know about concepts such as short selling. Therefore, if you are interested in knowing ‘can I short Bitcoin?’ then you should know the details mentioned in this brief guide.
Here are some major details of BTC shorting that can help you determine if this is a good option for you or not.
What Does Shorting Bitcoin Mean?
Shorting is basically a good option for crypto investors who do not believe that the price of a digital asset, BTC in this case, will surge for a long period. They believe that the price of the asset will drop in the future and therefore, decide to short Bitcoin.
Short selling is an investment style that benefits the investors when the price of the cryptocurrency drops. Since the crypto space is volatile and the prices of the crypto assets move up and down, it brings good opportunities for people who opt for shorting Bitcoin.
However, there are several attributes you need to be aware of before you start BTC shorting. You should know how it works, how to manage risks and what is the best way for you to short sell a digital currency.
Bitcoin Shorting Explained
If you want to know ‘can I short Bitcoin?’ then you also need to know how it works. In layman terms, shorting the crypto king allows you to borrow the asset from a crypto owner and sell it at the current price.
You can pay back the crypto investor you borrowed the asset from at a later time and date, with the help of perpetual futures contracts. As a short seller, you should also keep in mind that in order for you to get some kind of profit, the price of BTC needs to drop after you short it.
Example of Shorting
Considering an example of shorting Bitcoin can help you further understand the concept.
Let’s suppose as a short seller you short 2 BTC and at the moment they cost you $15,000. This means that you have borrowed the 2 BTC and will sell them at $30,000.
Now, let’s suppose that the price of Bitcoin drops to $14,000 and you close the position. This will be achieved if you re-buy the 2 borrowed Bitcoin at a lower price.
It will look something like this $14,000 x 2 = 28,000. This means that your profit will be $2,000 if you subtract $30k from $28k.
Risks of Shorting Bitcoin
If you want to explore ‘can I short Bitcoin?’ then you also need to know the possible risks you are likely to face. Short selling BTC is highly risky for one major reason. Normally when you invest in an asset you only lose as much as you invest.
However, this is not the same for shorting Bitcoin. The losses you may face as an investor may extend the amount that you invested, depending on the ratio you short. If you are not careful about the ratio you select and manage it carefully, you can lose all your funds.
How to Manage the Risks?
Knowing how to manage your risks while shorting Bitcoin can make quite the difference. If you do not pay enough attention to how to you can manage your risks you can end up losing more than you anticipated.
Therefore, one of the ways you can manage your risks is by using the stop-loss function. This function ensures that there is a cut-off point in case your trade does not go well. Thanks to this function, the loss you may face can be minimized.
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Easy Steps to Short Sell BTC
Apart from knowing all the above-mentioned details about shorting Bitcoin you should also be familiar with simple and easy steps you can follow.
The more information you have about shorting Bitcoin, the easier the overall experience can be for you. Here are three simple and easy steps you can follow.
- Opt for a secure and suitable exchange and deposit your Bitcoin.
- Keep an eye out for a shorting opportunity.
- Execute the order.
Shorting Bitcoin is an interesting concept that needs to be properly explored by every new crypto investor. It offers a few opportunities that can help you have a good and potentially profitable experience, even though profits are never guaranteed. As a new investor, you should know the details mentioned above.