If you are a BTC enthusiast then you need to know what shorting Bitcoin is as it is an important concept to know about. People who are new to the crypto space need to know that the crypto space offers numerous beneficial opportunities to the traders.
The opportunities to get some kind of benefit are not limited to buying, trading, selling or hodling BTC. It also includes functions such as shorting BTC.
Therefore, if you are interested in the flagship crypto asset then you need to know what shorting is and knowing the information mentioned below can also help you get a good idea of “can I short Bitcoin or not?”.
Here is a brief guide for beginners who want to learn about shorting.
What Does Shorting Bitcoin Mean?
Shorting is also called short selling and it is an investment style. This is mostly opted by people who are not so confident that the price of the crypto king will surge in the future.
With the help of this investment style, the short sellers are able to get some profit when the price of the cryptocurrency drops. Since the price of Bitcoin is known to be quite volatile it presents a lot of opportunities to both people who want to long and short the crypto asset.
Therefore, learning more details about shorting, can help you short sell the flagship crypto asset, which can be beneficial for you.
Basic Working of Shorting
To put it simply, shorting Bitcoin is a process that allows you to borrow a digital currency, which is Bitcoin in this case. Once you borrow that financial instrument or crypto asset you can then sell it at its current price.
If you have a profitable trade, you will be able to pay back the person you borrowed the instrument from in a budget-friendly manner. However, in order for the trade to be beneficial, the price of the Bitcoin has to drop after you short it.
This is how shorting works but if you want to know ‘can I short Bitcoin?’ then you need to know the details below as well.
Example of Shorting
To understand how shorting Bitcoin really works, it is important that you consider an example of this concept as well.
Here is an example of short selling, which can help you get a better understanding of how it works.
Let us consider:
You are a trader and the price of the crypto king is $10,000. Let us suppose that you want to short 2 BTC. This would mean that the 2 BTC you borrow will be sold at $20,000.
Now let us suppose that the price of the flagship crypto asset drops to $9,000 and you close your position. This would be done after you re-buy the 2 BTC you borrowed at a lower price, which would be $18,000.
According to this, the profit you would get as a short seller is as follows:
$20,000 – $18,000 = $2,000
Is Short Selling Risky?
Investing or trading digital assets is always risky. However, the risks of shorting Bitcoin can be higher because if you short sell an asset your losses would go beyond your initial investment.
This would depend on the ratio that you opt for.
In other words, when you normally invest in something, and the trade does not go well, you only lose as much as you initially invest.
However, if you short sell Bitcoin then the losses you may face will depend on the ratio you choose.
How to Manage the Risks?
Managing the risks of shorting Bitcoin is also a crucial piece of information you need to have as a new trader. There are several ways that people manage their risks.
It is important that you learn about the risks that you may face and how you can manage them as it will help you have a better experience of short selling the crypto king.
One of the ways traders manage the risks is by opting for the stop-loss function. This function ensures that there is a cut-off point in case the trade does not go well and you are about to face losses. The stop-loss function ensures that you do not face more losses than you can afford.
Simple Steps to Short Sell Bitcoin
If you want to know ‘can I short Bitcoin?’ then you need to know the simple steps you can follow as a new trader.
If you want to short sell Bitcoin then here is what you need to know.
- Look for a suitable exchange where you can short sell Bitcoin
- Look for an opportunity to place the order
- Execute the order
Shorting Bitcoin is an important concept you need to know so you can get a good idea of what the crypto space offers to the interested parties apart from buying or trading. To know more details you should take a look above.