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As we have seen over the years, there are numerous ways to make money with Bitcoin, and Bitcoin shorting is one of them. In this article, we’ll be taking a look at what Bitcoin shorting is, and ways to short sell Bitcoin.
What is Bitcoin Shorting?
In simple terms, this is the process of selling Bitcoin at a high price and buying it back when it is at a low price.
We know the usual thing investors and traders do is to buy at a low price and sell at a higher price, but in this case, they’re doing the exact opposite.
How Does Bitcoin Shorting Work?
In the shorting process, you borrow cryptocurrencies and sell them on an exchange at the current price. Then you will need to buy the cryptocurrency at a later date and repay the capital you have borrowed. You then get to keep any leftover money as a profit.
5 Ways To Short Sell Bitcoin
1. Margin Training:
In this trading type, you are borrowing crypto from a broker in order to execute a trade. Margin involves borrowing or leveraging money. This means it cannot only increase your profits but lead you to greater loss.
Usually, the broker offers you a certain percentage of the money you can borrow from the exchange and use for your trading. After a given number of days, you will need to return the money you have borrowed and settle down the transaction.
2. Futures Market:
In a futures trade, a buyer agrees to purchase a security with a contract, which specifies when and at what price the security will be sold. If you buy a futures contract, you are betting that the price of the security will rise; this ensures that you can get a good deal on it later.
when you are shorting futures, you agree to sell a contract at a lower price. Plus, the good part about it is that new traders can get into it with modest investment.
3. Binary Options:
The call and put options are a well-known concept where you have to execute a put order using an escrow or other services. Your goal is to sell the currency at today’s price, even if the market price drops later on.
Binary options are available through a number of offshore exchanges, but the costs (and risks) are high.
But the main advantage is that you can limit your losses by not choosing to sell your put options. So you are only taking a loss of the money you spent on creating a put order.
Overall, it is a short-term and limited-risk contract trading type. It has two possible outcomes. The first outcome, you make a profit which you have predefined. Or you lose the money you paid to open the trade.
4. Prediction Market:
This is pretty similar to the mainstream markets. As a trader, you can create an event to make a wager based on the outcome. You will have to predict that the Bitcoin price will drop by a certain margin or percentage. In case if anyone takes up on the bid, you will get profit if your prediction comes true.
In this case, there is no need to lend funds from anyone. If your bet hits the bullseye, you take your profit.
This stands for contract for differences. CFD is a financial strategy that pays out money based on the price difference between open and closing prices for settlement. Bitcoin CDFs are similar to Bitcoin Futures, as they are also betting on the cryptocurrency’s price. So when you purchase a CFD, you are betting that the price of Bitcoin will fall. Therefore, you are shorting Bitcoin.
The shorting concept really comes in handy when you expect a currency’s value to drop. On the other hand, you should go long when you know the market price will go up.
But you should know that shorting comes with risks. So if the market doesn’t move as expected, you may have to buy a currency at a higher price to pay back your broker.