Crypto Shorting – What Is It & How To Do It
The volatility of the cryptocurrency market is infamous, with bearish markets just as likely to form as bullish equivalents. With Tradu, you can take advantage of downturns in the value of Bitcoin, Ethereum and more once you know how to short crypto.
With Tradu you can trade crypto via CFDs.
Read on for more information about how to take a short position with Tradu and the factors that can force crypto values to fall.
- What is shorting cryptocurrency?
- Can you short crypto through CFDs
- Example of how to go short on crypto
- What affects the price of cryptocurrency?
- How to go short on crypto with Tradu
What is shorting cryptocurrency?
Shorting is a common investment strategy in stocks and forex as well as crypto. It involves speculating on the falling value of an asset, either through selling shareholdings or leveraged products such as contracts for differences (CFDs).
When you sign up for a Tradu trading account, you can quickly take a short position on a wide range of cryptocurrencies.
Can you short crypto through CFDs?
Bitcoin and Ether are among the cryptos we offer CFDs on, as well as altcoins that can often experience high volatility in short timespans.
If you believe that a cryptocurrency is likely to fall in value, you can take up a short position ('sell') on our platform and set your margin – the amount you will pay to enter the contract.
You stand to profit if your prediction is correct and crypto values fall. However, if they rally and gain value, you can lose your initial investment and more.
These leveraged products mean you can access the full value of the trade with lower upfront capital. Be aware that this can lead to magnified losses in adverse conditions as well as profits if your prediction plays out.
You will never own any cryptocurrency coins or tokens when you enter a CFD.
Get more information on CFDs in our in-depth guide.
Example of how to go short on crypto
Let's say you believe that Bitcoin might lose value. Here's how you could make money shorting crypto through CFDs.
The sell/buy price at the time of your trade is 24550/24590. You sell two contracts at 24550, meaning you will gain or lose $2 for every $1 change in the price of Bitcoin.
Profit: Bitcoin falls in value against the US dollar and the sell/buy price moves to 23270/23310. The price of Bitcoin has moved 1,240 points in your favour. You buy two units to close your trade at 23310.
Your profit is $2,480 (1,240 x $2)
Loss: Bitcoin rises in value against the US dollar and the sell/buy price moves to 25750/25790. The price of Bitcoin has risen 1,240 points against you. You buy two units to close your trade at 25790.
Your loss is $2,480 (1,240 x $2)
What affects the price of cryptocurrency?
Crypto's decentralised nature is a key attraction to many investors. The kind of sociopolitical factors that can impact stocks and forex prices often don't apply to crypto.
However, many things can lead to sharp swings in crypto prices and values – having a knock-on effect on your crypto trading strategies.
If you're looking to take advantage of instances of falling crypto prices, here are some elements to be aware of:
- Supply and demand: Like any other tradeable commodity, the number of coins in circulation and the desire to purchase them can make prices rise or fall. Cryptocurrencies are replenished in a process called mining, with some coins being mined in greater quantities than others.
- Production costs: Crypto mining – most notably Bitcoin – is done by vast networks of computer systems that require huge amounts of electricity to operate. Indeed, mining Bitcoin uses more electricity than some small countries.
- Regulatory changes: Cryptocurrencies remain unregulated around the world, but this could be in line to change in years to come with widespread government interest in their ownership. Crypto CFDs are heavily regulated in many countries.
- Media coverage: Public curiosity can move crypto prices perhaps unlike any other asset. Dogecoin is a fine example of this. The currency was established as a joke by its creators, with a meme of a dog for its logo. But online endorsements from the billionaire businessmen Elon Musk and Mark Cuban briefly led to it becoming the sixth-most valuable cryptocurrency on the planet. In part due to its enormous circulating supply, it retains a healthy market cap to this day.
How to go short on crypto with Tradu
If you've spotted something in the crypto markets that could result in prices falling, you could still make a profit with short positions.
- Sign up: Signing up for a Tradu trading account is quick and simple. You could make your first deposit in just a few minutes.
- Do your research: Browse our market, trading and platform guides so you know the ropes before trading.
- Decide your strategy: It's important to be clear and confident in your approach.
- Lock in your short position: Execute your trade in seconds thanks to our high-tech platform.
- Monitor values and close your trade: Whether you analyse the markets manually or take advantage of our automated stop orders, we make it easy for you to get out when the time is right.
- Diversify your portfolio: If you're successful in shorting crypto, why not see if you can spot similar patterns in CFDs on forex and stocks? If you want a diversified portfolio, we make it easy to trade a wide range of CFDs on commodities in one place.
Want to learn how to long and short on crypto CFDs?
Things move fast in the crypto world. To help you stay one step ahead, we've created a series of guides so you can get your head around everything you need to know before you make your first crypto trade.
The information in this article is for educational purposes only.