In the financial market, the possibilities are broad. Investors and traders could advance their interests and earn profits in multiple ways. They can also keep themselves secure from possible loss by utilizing appropriate strategies. For bitcoin traders, one option is to short their currency holdings. Perhaps you’re asking: “Is this possible?” Of course, the answer is yes.
However, given the volatility and the absence of regulation in the crypto industry, shorting bitcoins may have higher risks. Despite this fact, it remains as one recourse for traders in certain situations. For instance, if there is a sound probability that the bitcoin market will crash at some point in time, shorting could be the most appropriate strategy. Below are your guides on how to go about the process of shorting in bitcoin tradings.
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Futures Market
Various assets have futures markets where participants buy and sell commodities and contracts for future delivery on a specified date. The same thing happens in bitcoin transactions. You can agree to purchase a security with a contract in a futures trade. The agreement includes the place, date, and amount of the security being sold.
If you decide to buy a futures contract, you are calculating the increase in the price of the security. Making this transaction indicates that you would likely get a favorable deal on the negotiation later. When the probabilities are not in your favor as the bitcoin price is foreseen, you can decide to sell a futures contract. In such a case, you are shorting bitcoin by buying contracts that have a lower price for the digital currency.
Margin Trading
Many investors are looking for the easiest way to short their holdings when the need arises. In the bitcoin market, the fastest way to do that is through margin trading. There are now various brokerages and exchanges that allow such trading. This warrants crypto holders to borrow assets from a broker to join trading transactions. Through this strategy, you may be able to boost profits and reduce losses. Some of the most popular options today are Binance and Kraken that enable users to make margin trading.
Short-Selling Bitcoin Assets
Some people have the urge to bet against bitcoin pricing. When the outcome favors this strategy, they earn. This is called short-selling bitcoin assets. You can do this by selling off tokens for a reasonable amount and then buying the same asset when the price drops. When the price adjusts as you anticipate, you could get returns; otherwise, you might lose some assets.
Before initiating this strategy, remember that it involves some costs and risks. Storing your bitcoins until favorable trading occurs would entail fees for custody and having a secure wallet. The risks are primarily associated with the volatile nature of the industry. It could magnify gains or losses depending on how you go about the process.
Binary Options Trading
Another alternative if you wish to short your bitcoins is through binary options trading. This involves call and puts options. For instance, you can have a put order with an escrow service to short a cryptocurrency. The main goal of the strategy is to sell the assets at the current price despite the possibility of a price drop later on.
There are now various offshore exchanges allowing binary options; however, the costs and risks are high. Nevertheless, it’s worth taking this strategy when you can limit your losses by not selling your put options.
Predictions Markets
When other options seem unsound, you can consider prediction markets to short bitcoins. These venues work the same way as mainstream markets, where investors can organize an activity to make a wager based on the outcome. Through this strategy, you can predict that the crypto price would plunge by a certain percentage. The profit comes when other players take you up on the bet.
Risk Note:
Shorting bitcoins is not always profitable because it comes with enormous risks. Before you take the strategy, you have to weigh the probabilities. You have to be certain that the outcomes would run in your favor.
The important factors to consider when assessing the pros and cons of shorting are the volatility of crypto prices and the lack of regulation in bitcoin transactions. Still, it’s one thing to try when the probabilities are promising.
