How to short cryptocurrencies
The crypto market is particularly volatile, which offers many opportunities to take a position – even when cryptocurrency prices go down. Find out how to short cryptos with us.
What is crypto shorting?
Crypto shorting or short-selling is a trading strategy used to make profits by borrowing cryptocurrencies from an online broker, selling them at a higher price and buying them back when they’re expected to depreciate in value.
This means that if the market moves in your favour and the underlying crypto market depreciates, you can expect to make a profit from the price movement.
Why would you short crypto?
You'd short crypto if you expect the value of the cryptocurrency market to depreciate. Some of the reasons why you may want to short cryptos include:
- High profitability. The crypto market is highly volatile. The high-risk high-reward nature of the market is what attracts risk-averse traders who stand to make amplified profits if the trade moves in their direction and a significant loss if it turns against them
- Access to margin trading. When choosing margin trading, also known as leveraged trading, an online broker will lend you the full value of the trade. All that’ll be required from you is a deposit, which will be a percentage of the trade value
- Hedge against your open positions. When holding two positions on the same crypto, you can use the short position to offset the losses made on the long position through hedging. There are a number of hedging strategies you can use to do this
How to short crypto
- Research which crypto you want to short
- Open a live account or practise on a demo account
- Open a position to ‘sell’ the crypto you want to short
- Choose your position size and manage your risk
- Place your deal and monitor your trade
1. Shorting cryptos with CFDs
With us, you can short crypto like bitcoin, ether, litecoin, chainlink, uniswap, polkadot using CFD trading. When shorting cryptocurrency using leveraged products like CFDs, you’ll speculate on the rise and fall of the underlying volatile crypto market.
Leverage will enable you to trade on the underlying cryptocurrency by paying an initial deposit that’s a fraction of its full market value. When trading with CFDs, you’ll speculate on the price movement of the crypto market and won’t take physical ownership of the underlying asset.
You should be careful when trading leverage because as much as it’ll amplify your profits when the market moves in your favour, it’ll magnify your losses when it turns against you. Ensure you only trade amounts you’re comfortable losing and take precautionary measures to manage your risk.
Example of crypto short-selling
If, for example, ether is trading at 11.1285 and you believe its market price will decrease, you might decide to open a short CFD position on 160 ether CFDs.
Let’s say a couple of days later the buy price reaches 10.1345 then you decide to close your position. This will mean you’ve made a profit of $159.04 in profit ([11.1285 –10.1345] x 160 = $159.04), excluding additional costs.
If the price of crypto rises, you’d make a loss. For example, if ether rose to a buy price of 13.1345, you'd have made a $320.96 loss instead ([11.1285 – 13.1345] x 160 = – $320.96), excluding additional costs.
Long vs short position in crypto
There’s a difference between taking a long and short position on cryptos. You’ll go long when you expect that the cryptocurrency’s price will increase and go short when the opposite is true.
You can potentially make profits when shorting by selling before the crypto price decreases. Essentially, you’d sell the crypto at a higher price and buy it back at a lower amount.
The table below shows the differences between taking long and short positions when trading crypto:
Long position |
Short position |
| Buy cryptos with the intention to sell later at a higher price | Borrow cryptos you want to sell, then buy them back at a later stage |
| Make profits from the sale when the crypto’s price increases | Make a profit when the crypto’s price decreases and give asset back to a lender or an online broker |
| Comes with limited risk. Price can never go below zero | Has unlimited risk. You can lose more than you’ve shorted since the crypto price can increase infinitely |
Shorting cryptos summed up
- Crypto shorting is a trading strategy used to make profits by borrowing cryptocurrencies from an online broker, selling them at a higher price and buying them back at lower rates
- There’s a difference between taking a long and short position on cryptos. You’ll go long when you expect the digital currency’s price will increase and go short when the opposite is true
- With us, you can go short on crypto via CFD trading
- When shorting cryptos using leveraged products like CFDs, you’ll speculate on the rise and fall of the underlying cryptocurrency market without owning any assets outright
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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