Cryptocurrencies are highly-volatile assets and shorting them can potentially yield lucrative profits; however, it requires an in-depth knowledge of all risks involved and various ways of shorting crypto currencies. In this article we’ll look at these strategies, along with providing advice to avoid losing your funds along the way.
Shorting cryptocurrency can be seen as an investment strategy where you bet that its price will drop over time and sell your borrowed asset before buying back at lower cost for profit.
One way of shorting cryptocurrency is via prediction markets, which have become incredibly popular in the DeFi space and allow you to bet on its decline by an agreed upon margin. Popular prediction markets include Polymarket and Augur.
Futures contracts provide another method, providing financial agreements between two parties that establish the price for an asset such as crypto at an agreed-upon future date. Unlike options contracts, futures contracts remain open forever and can be traded on exchanges like Coinbase that support derivative trading while adhering to US regulations.
CFDs (contracts for difference) can also help you short crypto, as this type of trade pays out the difference between an open and closing price as settlement. While futures and options allow only for shorting one asset at a time, CFDs allow trading across an array of assets including crypto without necessarily needing to own them beforehand.
No matter which strategy you employ when shorting crypto, make sure to perform extensive research and consider all market indicators before taking action. This should include reviewing trends, historical prices and market news that could influence asset values; in addition to using technical analysis tools to gauge potential entry points.
When shorting a cryptocurrency, selecting an appropriate platform is essential to successful trades. Your platform of choice will determine your available tools, fees and liquidity options as well as its security record and reliability record. Furthermore, be wary of “bear traps”, where prices fall before rapidly rebounding upwards to defraud short sellers of their capital.
Binance, Kraken and KuCoin are among the many exchanges offering margin trading accounts with high liquidity and reasonable fees that make margin trading an effective means of shorting crypto. Many leveraged tokens also exist within these exchanges that may help multiply profits; but be wary that similar principles that make leveraged tokens profitable may also magnify losses – be sure to read all fine print before beginning margin trading!