What you should know about shorting in the crypto markets
Everyone who enters the crypto market to trade is interested in buying an asset when the price is low and selling when the price of the asset is high. (Buying high and selling high). This is why most traders spend quality time analyzing the crypto market either by using their technical or fundamental analysis knowledge in checking the market buying or selling.
Profits are what all investors and traders are interested in which is why enough time is been spent on analyzing the market first, which the question is after analyzing the market and it keeps dipping (bearish), what would you do to secure your capital from further decline? Well shorting which has been discussed in this post, is a simple strategy you can apply and secure your capital from declining.
SHORTING IN THE CRYPTO MARKET
As a trader sometimes you may wish to sell your asset with the hope of rebuying the asset back when the price is down. This is exactly what shorting means in the crypto market. Let's throw more light on this for a better understanding.
Shorting means selling your cryptocurrency in the hope of rebuying the cryptocurrency when the price has fallen. As a trader, the a of you enter a short position, is because you are expecting the asset to decline, meaning you have the hope that the asset will go bearish and it will be best for you to sell it and buy it back later.
To this, instead of you holding the asset which will further decrease your money it will be best to apply the strategy of shorting which is the simplest way of making a profit from the crypto market. The best thing about shorting in the crypto market is that it helps you preserve your capital during a price decrease.
How Shorting Works in the Crypto Market
Shorting happens mostly on borrowed capital, but not in all cases as it is not all trades that trade with borrowed funds. However, if you are trading in Future trade then you should know that you're making use of borrowed funds since leverage is involved.
Tradingview
To this let's assume that you want to sell Steem in a spot at $0.31 with the hope to rebuy it later when the price falls to $0.25, which means you have applied for a short position. However, in the case of shorting it is done using borrowed capital as we said earlier, for those that trade on futures contracts, derivative assets, margin trade, and other forms of trading.
Now let's say that you are confident that the asset you want to trade on will go bearish and you out a collateral, and borrow a certain amount of the token you feel will go bearish and you sell it off waiting for it to go bearish.
A short position is what you have open. If the market go as you predict which is lower, you can buy back the amount you have borrowed and pay off what you borrowed with interest. The profit you will get will be determined by the price at which you sell and rebuy the asset.
Tradingview
Using BTC as an example, a trader borrows 1 BTC and sells the BTC when the price is $20,000 and waits for the price of BTC to fall to $18,000. Now the trader has to buy back the 1BTC and return it to the lender which is the exchange or his or her friend. This simply means the trade has made $2,000 as profits.
Conclusion
In this post, we have come to understand what it means by a short position and why it is used by a trader to secure their funds from further declining. Shorting can be for those who trade on quarterly or perpetual futures contracts which we have learned in this post.
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This is an interesting post on cryptocurrency shorting in the market.
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