Complete Guide On How to Short Bitcoin in 2021

Complete Guide On How to Short Bitcoin in 2021

Do you want to learn how to short Bitcoins? If yes, then this guide is all you need.

Shorting Bitcoin is a good option for those who believe that soon there will be a fall in the currency graph. It is for the investor to remain on the safe side. But some investors hesitate to do so because they lack the knowledge of short selling. 

Keep the worries aside as this guide will walk you through the question of how to short Bitcoins.

What is Short Selling? 

Investors use the term short selling, also known as short in the finance industry, to earn a profit from the commodity when they believe it will be down soon. To know more, click here

How Does it Work?

Now you must have started wondering about its working. Well, in the process of short selling, one can borrow Bitcoins from a broker or an investor at a specified price to sell them and then buy them again. In simple words, you purchase the stocks afterward and return them to the brokerage or person who loaned them to you. The point behind this purchasing and reselling is the gut feeling that the value will be decreased by the time one repurchase it.

Let’s understand the complete process. For example, suppose a person short sells 5 Bitcoins at the price of $3000. This means a person is borrowing the 5 Bitcoins and selling them back at $18000. Now the price of Bitcoin drops to $2000. The person would use the selling amount to buy 5 Bitcoins at $10000 and return it to the broker or party from where he borrowed it.

In the complete process, the person has made a profit of $6000.

How to Short Bitcoin?

The very first step, if you want to short-sell Bitcoins is to reach out to the brokerage firm or trading agency. The firm will buy the Bitcoin on your behalf and then sell it and buy it again later when the price decreases. This simply means, if you gain 5 Bitcoin, you’ll have to reimburse them regardless of how much the price rises or falls.

If the price falls in the future, then you will get the same Bitcoins at a lower price. But if it rises, then it will become costly for you. While you’re doing it, keep in mind that the person or organization who lent you the asset has the option to question you back at any moment and only has to give you a brief notice. Below are some ways on how to short Bitcoin. 

1. Short Selling CFDs

CFD is an acronym for contract for difference. This saves you from all the hectic processes of selling, borrowing, and repurchasing, all you have to do is pay the difference.CFDs allow you to profit if the value of Bitcoin falls without bothering to go through the hassle of buying and selling Bitcoins.

2. Shorting Using Crypto exchange

Some cryptocurrency exchanges allow sellers to short sell coins with leverage. To enhance profits, you can leverage by borrowing the money from the marketplace that you own.

3. Use Options

Some platforms offer these features named options where you have the choice, but not the responsibility, to purchase or sell an asset at a specified price at a future point. If you’ve worked with options before, then it is well and good. However, a word of advice to all-rookies, don’t try it if you are not familiar with the concept.

That’s all! Here you got all the information about how to short Bitcoins with no difficulty.

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