Crypto trading has become popular as a modern and accessible investment option with much lower barriers to entry than traditional financial markets. There are lots of differences between crypto trading and conventional trading, but there are also numerous similarities. If you want to short a particular cryptocurrency, there are several ways. This article will discuss 5 ways of short selling cryptocurrency.
Margin trading is probably the easiest way of short selling cryptocurrency, in large part because it is a common feature amongst the most prominent cryptocurrency exchanges. The margin trades rely upon investors being able, in a sense, to borrow money. They can borrow money from a broker for each trade they make. Of course, this money is recouped by the traders or exchanges, who take a cut of the trade.
Margin selling enables investors to automatically sell cryptocurrency once its value rises or falls to a particular level. Given how volatile cryptocurrencies like bitcoin are, margin selling is a good way of ensuring that you don’t miss out on any favourable fluctuations.
The Futures Market
Just like other types of asset, there is a futures market for cryptocurrencies. When an investor purchases a future trade, they are entering into an agreement to buy or sell the asset in question at a future date for a particular price. Futures trades are normally entered into by those who are expecting the value of an asset to increase. However, selling a futures trade is a viable way of betting against bitcoin if you are anticipating some kind of price crash.
There are a few platforms on which you can buy and sell cryptocurrencies compared to margin trading, but you still should find plenty of options if you want to go down this route.
Binary Options Trading
Another way of short selling cryptocurrency is to use call and put options. You can do this for essentially any crypto. Usually, this is done via an escrow service with investors executing a put order with them. In this situation, this investor is undertaking to sell the currency at today’s price. This is even if it drops in value later on. The costs and risks of binary trading options are much higher than many other forms of shorting. This makes binary trading one of the less accessible options on the list.
This is the newest form of cryptocurrency investing on this list but has rapidly become a popular option for investors to consider. With prediction markets, investors are essentially betting on a particular outcome occurring. You can short cryptocurrencies by taking out a bet on the asset’s value increasing or decreasing by a certain amount. This could be expressed as a percentage, or as a hard dollar amount.
A common form of this is a contract for difference. When you trade cryptocurrency CFDs, no assets change hands. Instead, you enter into a trade whereby the payout depends on the movement of the asset’s value, not its actual price. If you think that the price of crypto is going to go down, you can buy a CFD from a seller that states the asset will be worth X at an agreed time. At the end of it, you will receive the difference in value as a payout from the buyer. If the price of the asset moves in the right direction, you gain; if not, you lose.
This is how most people speculate with Bitcoin. They buy up the asset when its price is low and then hold on to it until the price rises again. Some investors will sell their assets when their value increases to a certain amount, others are hoping to accumulate by purchasing in bulk when the asset is cheap.
Cryptocurrency investing is a notoriously risky game, but it is also a much more accessible investment asset for ordinary people. Anyone can begin trading Bitcoin, even if they only hold a small amount of it. Just remember to consider volatility when you are investing.
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