2 Proven Ways to Short Sell Bitcoin in 2022 – A 6 Step Guide

Did you know that an average crypto trader doesn’t even use 10% of the potential of various trading strategies that they know? Most traders only follow one trading strategy during their trading journey. For example, 95% of traders do not make a profit over a long period of time.

However, a professional trader can make money in the market regardless of the market situation. He is equipped with several well-designed trading strategies that allow him to make a profit. It doesn’t matter if the market is in a Bull or Bear.

One such strategy is: short selling which can be used to make money in a Downward trend.

Note: Now let me be very candid. This post is for educational purposes only. Going short is very risky and you can lose all your money. Don’t try this unless you have enough knowledge, experience and money to lose.

So now that I’ve covered my risk, I should be able to speak freely about the risks, rewards and methods of short selling.

What is Bitcoin short selling?

Going short is simply a way to sell an asset when you don’t own it. It allows you to make money even in a downtrend.

To make a profit on every trade, there is one simple rule, Buy low and sell high. The only difference from the short-selling process is that you sell first and buy later.

Here, a trader expects the future price of an asset to be lower than its current price.

For example, Bitcoin is trading at $34,000 today and I expect it to drop to $30,000 this week. In this case, I can short sell bitcoin today @ $34,000 and buy it back @ $30,000 at the end of the week. So with this exercise I could make a profit of $4,000 per Bitcoin.

How to short sell Bitcoin or Altcoins?

There are several methods by which you can short sell an asset. However, I would discuss the following two easy ways:

  1. Short Sell Bitcoin Through Margin Trading
  2. Short Sell Bitcoin Through Futures Trading

So let’s first understand the margin trading method on Binance with an example. If you don’t have an account on Binance, create one right away.

Short Selling Bitcoin on Binance via Margin Trading

If you enjoy learning by watching videos, check out the tutorial below:

Going short through margin trading means selling Bitcoin (without owning it) you have to borrow it from the stock market first. Further, once the price of Bitcoin has fallen in the market, you would buy the Bitcoin back and repay your loan along with interest.

To make it easy for you to understand the procedure, I will try to cut some Bitcoin.

For this I have to follow four simple stages:

  • Phase 1 – Borrow BTC
  • Phase 2 – Sell BTC
  • Phase 3 – Buy BTC
  • Stage 4 – Repay BTC (with interest)

So let’s see.

Once you are on your Binance account, follow the step below to make a short trade.

Phase 1 and 2 – Borrow and Sell BTC

  • Step 1 – Click on “swap” and then click on “classic”
Short Sell Bitcoin – Binance Margin Trading
  • Step 2 – On the trading screen, choose “cross” or “isolated” margin. I will select cross margin.
Short Sell Bitcoin – Binance Margin Trading
  • Step 3 – To borrow money, you must first transfer collateral to your margin account. Click on transfer and transfer money from your spot wallet to your margin wallet.
Crossed Margin Wallet – Funds Handover
  • Step 4 – Now that you have deposited the collateral, you need to borrow and sell Bitcoin. Both phases would be completed with a single action.
  1. Choose the type of order (limit, market or stop limit)
  2. Make sure the “Borrow” option is selected in the sales window
  3. Enter the BTC amount to be borrowed and sold
  4. Click on “BTC Sales Margin”
Binance Margin Trading Window 4
Short Sell Bitcoin – Order Details

This will complete your Stage 1 and Stage 2 i.e. Borrow BTC and Sell BTC.

Let’s move on to phase 3 and phase 4. Once the price of BTC falls, you will need to buy back the BTC you sold to repay your loan along with interest.

Phase 3 and 4 – Buy back and refund BTC

  • Step 5 – To check the total amount you owe, click on the Borrow button and a window will open. Click the Refund button to find the total amount you owe Binance.
Short Sell Bitcoin – Borrow Total
  • Step 6 – Now you must understand that I have to buy back and repay my loan. My total loan (including interest) is 0.00030001 BTC. To complete the loan, I will buy a little more than this. So let’s buy 0.00031 BTC.
  1. Select order type
  2. Make sure the “Refund” option is selected
  3. Enter the amount to buy in BTC
  4. Click on “Buy BTC”
Short Sell Bitcoin – Buy Back

The BTC is purchased and your loan is automatically repaid (along with interest) from the purchased BTC.

This is how you short sell Bitcoin using margin trading. There is another popular option to short sell Bitcoin, which is futures trading. Let’s understand how to follow this method.

Sell ​​Bitcoin short on ByBit via Futures Trading

Going short through a futures contract means that you are not actually trading an asset, but simply betting on an asset. A futures contract is a derivative that mimics the price of the underlying asset.

To understand the procedure of shorting via Futures Contract, I will short sell BTCUSDT contracts on ByBit.

So let’s understand the step by step process.

If you want to learn it by watching the video, go here:

  1. Click on your email address at the top right
  2. Click on “credits”
  3. Click on “Derivatives account”
  4. Deposit the money you want to trade with from your spot or other wallet
ByBit – Short Selling with Derivatives
  • Step 2 – Choose the derivative contract you want to trade
  1. Click on “Derivatives”
  2. Choose “Contract Type” – “USDT Perpetual” (Choose contracts at your discretion)
  3. Choose “Trading Pair” – “BTCUSDT” (Choose contracts at your discretion)
ByBit – Short Sell Bitcoin – Perpetual Contract
  • Step 3 – Enter order details
  1. Choose Open Window
  2. Choose Margin – Isolated or Cross – (Isolated)
  3. Choose Leverage – up to 100x – (1x)
  4. Choose order type (Limit, Market, Conditional) – (Boundary)
  5. Choose “Order Price” – ($29,850)
  6. Choose “Order Quantity” – (0.001 BTC)
  7. Select “Sell Short with TP/SL”
  8. State Take Profit Trigger Price – Must be lower than Order Price – ($29,000)
  9. State Stop Loss Trigger Price – Must be higher than the order price – ($30,500)
  10. Click on the “Short Open” button
ByBit – Short Sell Bitcoin – Perpetual Contract

In this way, your short sell order is placed along with the profit take trigger price and stop loss. This means that if one of these two prices is triggered, your position will be closed automatically.

Now that we have understood the two most popular Bitcoin short-selling methods, let’s discuss the risk of the short-selling procedure.

Short Selling Risks

If the price of the subject asset does not fall according to your expectations, there is no limit to the loss you should bear.

If you make a traditional trade, say you invest $1,000, your maximum loss would be $1,000. But with short selling, the potential loss could be your entire account balance.

Furthermore, if you have taken a leveraged position during short selling, your position will be closed once your margin falls below the required maintenance margin limit.

So to mitigate these risks to some extent, you should always use the stop loss feature.

Inference: Short Sell Bitcoin

While risky, short selling is a worthwhile strategy when applied properly. Most traders keep their money idle during a bear market which can be used to perfect the art of short selling.

I hope you have been able to get an idea of ​​how a short selling bitcoin strategy works and when the time is right you will use this strategy to make a profit.

Keep in mind that short selling and leveraged trading are very risky and you could lose all your money. Therefore, only use these strategies if you have sufficient knowledge and experience.

Please also note that I am not a financial advisor, and this is not financial advice. DYOR before investing or trading.

Let me know your feedback in the comments section and share this article with your friends and colleagues. Subscribe to our newsletter for more such articles.

Hard Agrawal

Harsh Agrawal is the crypto exchange and bots expert for CoinSutra. He founded CoinSutra in 2016 and is one of the industry’s most highly regarded professional bloggers on fin-tech.

An award-winning blogger with a track record of over 10 years. He has a background in both finance and technology and has professional qualifications in information technology.

An international speaker and author who loves blockchain and crypto world.

After discovering about decentralized finance and with his background in information technology, he made his mission to help others learn and get started through CoinSutra.

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