In this context, you can short Bitcoin by purchasing contracts that bet on a lower price for the cryptocurrency. Bitcoin futures trading took off around the run-up in cryptocurrency prices at the end of It is available on a wide variety of platforms now. El Salvador made Bitcoin legal tender on June 9, It is the first country to do so. The cryptocurrency can be used for any transaction where the business can accept it.
The U. Call and put options also enable traders to short Bitcoin. Binary options are available through a number of offshore 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 put options.
Thus, your losses are limited to the price that you paid for the put options. Popular venues for trading options are Deribit and OKEx. Prediction markets are another way to consider shorting Bitcoin. Prediction markets in crypto are similar to those in mainstream markets.
Investors can create an event to make a wager based on the outcome. Though this strategy might not appeal to all investors, those who have the stomach for it can reap gains if their bet against Bitcoin pricing succeeds. Sell off tokens at a price you are comfortable with, wait until the price drops, and then buy tokens again. Of course, if the price does not adjust as you expect, you could either lose money or lose Bitcoin assets in the process.
Short-selling Bitcoin also incurs significant costs and risks. For example, you will need to pay custody or Bitcoin wallet fees to store the cryptocurrency until the trade occurs. Certain exchanges also offer leverage for conducting such trades. Again, the downside to using leverage is that it could magnify gains or losses. A contract for differences CFD is a financial strategy that pays out money based on the price differences between the open and closing prices for settlement.
Unlike Bitcoin futures, which have predetermined settlement dates , CFDs have a more flexible settlement tenure. Bitcoin CFDs also do not require physical delivery of the cryptocurrency. Therefore, you do not have to spend on custody charges. They are similar to futures contracts and use them in conjunction with other derivatives to produce returns.
Both products are not open to U. As with any strategy related to cryptocurrencies, shorting Bitcoin is accompanied by enormous risk. Here are some things that you should consider while shorting Bitcoin:. But they are still relevant. Most avenues to short Bitcoin depend on derivatives.
For example, Bitcoin futures mimic spot price changes, meaning they cannot be used as an effective hedge against an investment in actual Bitcoin. Price is just one of several risks you will have to evaluate while shorting the cryptocurrency. As compared to other, more established assets, Bitcoin is nascent.
It has been around for only 13 years. For example, several issues related to Bitcoin forks are still unresolved. While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, new platforms like prediction market Augur started off being "clunky" and are susceptible to hacks. The absence of regulatory oversight means that exchanges have been able to get away with offerings that would not be allowed if there were proper oversight.
The lack of clarity about regulatory status means that legal recourse for customers of these exchanges is limited. Before you undertake a short position in Bitcoin, you should brush up on your knowledge of different order types. They can help limit losses if the price trajectory does not go in the direction that you bet initially.
For example, using stop-limit orders while trading derivatives can curtail your losses. However, it is important to consider the risks associated with shorting, of which there are many. The most common way to short Bitcoin is by shorting its derivatives like futures and options. Prediction markets are another avenue for shorting Bitcoin.
There are two main risks to shorting Bitcoin. The first one is price risk. Price volatility in the underlying asset can make it difficult to accurately predict the price movement of the underlying asset. The second main risk is the absence of a standard regulatory framework for Bitcoin around the world. Some of the biggest futures trading venues of the cryptocurrency are not regulated. This means that investors have fewer recourse options if something goes wrong with their trade. Bear in mind, however, that leverage use can magnify gains and losses.
Therefore, the risk when using leverage is proportionally greater. Accessed August 2, Crypto exchanges that allow shorting are platforms that allow margin trading. The second question I get asked is, how do you short crypto? Keep reading to learn more about how to do it.
Short selling is often done on an exchange or platform that offers margin. I will go through the top 5 crypto trading platforms that allow you to short cryptocurrency. There will also be a step-by-step guide on how to short crypto for each exchange. No matter if you are an experienced trader or just starting, this review will bring value to you.
If you are in a hurry, check the exchange comparison table below. I recommend that you read through the review before you start shorting. Yes, it is definitely possible to short sell cryptocurrency. Some of them have very good trading interfaces, there are a lot of coins to trade and they are also trusted exchanges. I would not recommend trading on any crypto platform without any kind of reputation.
For example Binance. Very intuitive copy trading platform A regulated digital asset platform that offers leverage trading Available in the US. Relatively new platform Not very beginner-friendly The website is lacking a market news source.
Very easy to use for beginner cryptocurrency investors and traders Regulated cryptocurrency exchange for extra security and trustworthiness CEX. IO is a veteran cryptocurrency exchange and has been live since Very poor trading interface for day traders and scalpers Low-quality customer support Few fiat currencies accepted.
Very favorable commission structure Free demo account to practice Very high interest in staking program. Non-regulated cryptocurrency exchange Relatively new exchange with no reputation Few altcoins available. A lot of special features for day traders Great platform for experienced traders Demo account for crypto trading. Non-regulated Takes time to learn the platform Relatively new exchange without reputation.
Non-regulated Very slow live chat with a long queue Relatively new platform with a weak reputation. As you will see throughout the review, all of these platforms have something special about them. Bitmex for example will provide you with a lot more leverage than any other cryptocurrency platform. KuCoin has over coins supported for trading.
Not all of which you can short sell, but there are a lot of cryptocurrencies on the exchange. ByBit is tagging along with Bitmex and is also offering very high levels of leverage on altcoins. There are however a few steps you need to take before you start short-selling coins on Binance. Keep reading and you will find information about this in the Binance section of this review. I would love for Coinbase to add this feature in the future because I feel very comfortable trading on Coinbase.
For now, we are sticking with these exchanges and if there are any changes in the future I will be sure to add them. I think this list of coins will increase over time as this trading platform is steadily increasing in popularity.
As I mentioned before, to be able to short-sell crypto on an exchange, there has to be margin trading involved. These are some of the most popular coins on the market and they are providing high levels of leverage in all of them. For some traders, I would not recommend trading with x leverage since it takes a lot of skill to manage entries. Especially since the crypto market is so volatile. However, if you are an experienced trader you will benefit greatly from this high level of leverage.
Once I learned how much leverage I was comfortable trading with I started making more steady gains while trading these altcoins. The fee is still 0. If you would like to trade on Prime XBT, click here to visit the exchange. Or if you feel like you want to learn before you start trading you can check out our Prime XBT review. As I mentioned earlier, the fees for short-selling on any crypto exchange will not change from the standard fees.
The only thing you need to do is own the cryptocurrency and they will automatically reduce your trading fees. If you are a very active cryptocurrency day trader or a heavy swing trader you need to have your fees reduced to not be eaten up by the exchanges.