Cryptocurrency is one of the most unstable assets. The rate of bitcoin or other coins can change several times a day: first showing a rise and then a fall. Then it rises again and so on ad infinitum. Just like on fiat exchanges, there are a lot of main models of behavior among cryptocurrency players. Of course, it is easier and less costly to buy a currency at a low price and wait for it to rise. But no coin has ever gone up without going down, so it's important for a cryptocurrency trader to short.
What is shorting?
To open a short position means to borrow a cryptocurrency and sell it on the exchange at the current price. It works like this: according to exchange rules, the trader cannot sell assets he does not own, so the broker lends him the needed crypto so that the trader can sell them. After the value drops, the trader redeems the cryptocurrency at a lower price, pays back what he borrowed, and profits on the difference between the purchase and sale price. For example, if you first sell bitcoin at $7000 and then buy it back after it has fallen by a certain percentage, say to $6500, you can get a profit of $500, or about 7%.
The loan is given on the exchange by other market participants, who are remunerated for it in the form of interest income. It depends on the term of the loan at a non-fixed rate.
Terms and Conditions for Shorting
Shorting requires traders' skills and willingness to analyze. Therefore, not everyone who plays on the upside can handle a falling market.
Professional traders know the psychology of newcomers in the industry and know when they will sell the currency and play short. Experienced players wait for such moments and begin the process of "squeezing". Compression allows getting the maximum profit from the pressure on the market orders. To avoid losses, it is not recommended to enter the market at the moments of this process of short positions and to make sales at the top of the rally.
In addition, it is better not to start working in the exchange at the moment of opening short positions in the first and the last hour of the trading session (it is better to be guided by the time zone of the headquarters of the exchange or the audience for which the site is intended), which are crowded with false movements of market players. This is dangerous because other traders at this point are only losing their positions.
The cryptocurrency is highly volatile, which makes it stand out from all the rest. A prolonged rise can quickly be followed by a sharp fall in the face of any minor imbalances or news. If you know the basic rules of how to short on Binance such moments will become an opportunity to make money.
First of all, to short trading crypto, a trader needs to select the cryptocurrencies, the value of which should decrease in the future. Next, he needs to determine the moment to enter the market, take credit and place an order. The success of the operation and its profitability depends on the correctness of the decisions made.
Those wishing to gamble on stocks or cryptocurrencies with the hope of a drop in value should definitely consider a few things:
- The growth of the market is always gradual, but its decline is always very fast. Therefore, in order to get the maximum profit from shorting, a trader must learn how to choose the right entry points into the market.
- Binance short selling allows earning a lot and fast, but wrong actions can not only bring any result but also lead to a loss.
- Profits largely depend on the size of the initial deposit. The bigger the initial deposit size, the bigger profit can be fixed.
How to short cryptocurrency on Binance
Where can you short crypto? Binance can be considered the optimal option, as it is the leader in terms of trading volume. The site has two types of interfaces: basic and advanced. The second type is worth using so that you can see the information from analytical tools. You can trade using more than 740 different cryptocurrency and fiat trading pairs. To make it clear to you how to short bitcoin or any other cryptocurrency, we have given a shortlist of actions. The trader's algorithm for opening a short position in Binance is identical for almost all trading platforms. If you still have doubts - can you short crypto on Binance? - take a look at the list and you will realize that there is nothing complicated here.
- You need to register on the exchange if you are not already registered there, and then deposit money into your exchange account.
- Then you need to analyze the market and determine the downward trends.
- After that, you need to go to the margin trading section and select the cryptocurrency to borrow and its volume.
- When the loan is issued, a sell order is placed. It is necessary to wait for its closing.
- Next, you need to wait for the market to meet expectations and redeem the asset back at a reduced value.
- The debt is returned to the exchange, and the difference from transactions remains on the exchange account on the personal balance.
There are two main nuances to consider when short crypto Binance:
- The price of the asset can go up. Financial markets are in constant motion. A huge number of factors influence the price of assets, some of which are hard to realize so it is not an easy task to predict the future value of an asset. A mistake may amount to a loss of the entire deposit, which even experienced traders are not insured against.
- Not all assets can short crypto on Binance. For example, on the stock market, you cannot short stocks that just went through IPO recently, as well as stocks and other assets, which have not shown any growth signs for a long time. The cryptocurrency market also has its limitations.
Automated trading on Binance
In addition to traditional trading, each trader can use a trading bot for Binance, which uses a strategy to play down. A bot, or robot, is software code that automatically performs actions according to predetermined conditions. Trading scenarios are purchased from popular bot services or written independently. You can buy different bots for shorting crypto Binance, download them for free, or create them yourself.
Binance, like many other exchanges, supports a variety of trading strategies. One of the most popular is copy trade Binance, which allows you to copy the positions of other traders directly. You yourself decide how much money to invest, and automatically copy all transactions, which opens the selected trader. In real-time, any trade opened by a trader is also displayed in your account. There are a large number of trading bots for Binance, so it is not difficult to choose the right one.
In conclusion, let's give a few more important tips for shorting:
- If a short position is opened and closed on the same day, the broker will not charge interest on the loan. In other cases, a certain percentage will be charged for each day.
- It is advisable to avoid this situation. Short selling is a riskier trade than buying because the potential loss could exceed the potential gain.