By reading this article, we will know what a shorting crypto in 2022 is and why traders want to go short. We also know that traders who go short have a bearish view of the future of the market. Creating a short position allows traders to profit from price declines and market declines. They can do this without having to hold assets.
What is crypto shorting?
The method of shorting crypto or short position allows traders to make profits even when prices are falling. Shorting simply means selling an asset (e.g., Bitcoin) at a higher price and buying it at a lower price. In other words, in shorting (without owning the desired asset) you sell it and close the trade at a lower price to make a profit.
Entering a short position means selling an asset in the hope of buying it in the future at a lower price. A trader who goes short expects the price of the asset to fall; In this case, the trader has taken a bearish position towards the market. Therefore, instead of holding and waiting, some traders prefer to profit from a decline in the price of their assets through a shorting strategy. For this reason, shorting can be a good way to preserve capital when the market falls.
Shorting crypto is a very common term in any financial market, including the stock market, commodities, forex, and of course the digital currency market. Likewise, many market investors and professional trading firms, such as hedge funds, use short positions. Shorting stocks or cryptocurrencies is a practical strategy that can be used for both short-term and long-term trading. Our professionals offer Asiasignal’s VIP channel to all traders for more success.
Mechanism of Short trading
Mechanism of Short trading
It is necessary to know that the mechanism of short trading is actually like this:
- You borrow from a digital currency exchange
- You open the position of the shorts
- You wait for the price to decrease according to your analysis and guess
- You close your position at a lower price, take your profit and return the borrowed token.
- All of the above is known as opening a short position.
- Now let's explain this mechanism with an example.
An example of short position
Suppose a trader believes that token A, which is currently trading at $50, will drop in price in the next three months. The trader borrows 100 units of this token and sells them. The value of this deal is $5,000. A week later, the short token enters a downward trend and its price drops to $40; The trader closes these 100 tokens at the price of $40 and thus takes the difference of $1000 from this process as profit.
Now suppose the trader did not close the short position at $40 and waits for lower prices. Meanwhile, with positive news, the price of the token reaches 65 dollars. The trader had opened this position at the price of $50 and if he decides to close the short position at $65, he will lose $1,500.
Shorting methods in crypto
In a general category, short transactions can be created in 3 ways; Margin trading, futures trading and buying and selling of leveraged tokens. We will introduce these items in the following:
This is the simplest type of short trading. You borrow a coin from the exchange and make your transaction. In this transaction, your money will really increase and your order will be done through the order book. Binance, Bitmex, Etoro, PimeXBT, CEX IO and XENA exchanges are mentioned as the best exchanges to carry out these transactions.
In futures transactions, currency is not bought and sold, so it is a paper transaction that only predicts the price. In this transaction, unlike margin, you do not receive real money and you do not buy currency, but the whole process is virtual. Since the price of each token can theoretically go up to infinity, the risk of losing your assets in a short sale is therefore unlimited.
All profitability in the digital currency markets is completely dependent on the correct analysis of the behavior of the digital currency, so that if an analyst tells you by examining the behavior of Bitcoin that the price of Bitcoin will increase, and you buy Bits based on his words, If the analysis is wrong, the price will fall and you will suffer a loss.
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If you've ever traded, you've probably heard the terms "fundamental analysis" and "technical analysis." These concepts bring to mind the definition and prediction of the value of cryptocurrency. Almost all traders agree that technical analysis is a fundamental exercise that should be used; Check the different methods of cryptocurrency signal analysis so that you can shorten crypto with full and accurate knowledge.
Buying and selling leveraged tokens
Another way you can benefit from shorting is buying and selling leveraged tokens in some exchanges. For example, in Binance, tokens that end with Up and Down are leveraged tokens. If you want to make a transaction like a short position, you need to buy Down tokens. The price of these tokens increases when the market falls and they give several percent profits. Naturally, at this time, Up tokens are at a loss and their price is decreasing.
Buying position (Long) and selling position (Short) in exchanges
Buying and selling digital currencies in spot exchanges is done with instant payment from the buyer's account. However, you can place long and short orders on an exchange without having any balance in your account. Registration of such orders, which are also known as borrowing and selling, is possible only in derivatives exchanges. In fact, by operating in exchanges that support future contracts, price difference contracts and option trades, it is possible for you to use long position and short position trades without digital currency.
Finally, it is not bad to point out that usually in a bullish market, the number of long positions is much higher than short positions; Because traders want to make more profit from the rising price wave. On the other hand, when the market becomes bearish, the number of short positions increases more than long positions. Of course, this conclusion is based on observations and cannot be considered as a general rule to short crypto.
Who is a professional trader?
A trader is a person who deals in financial markets. The activities and investments made by the trader may be for himself or on behalf of another person or different institutions; But the main goal of the trader in all transactions will be to make a profit. If these transactions are done for individuals or institutions, the trader will be charged a fee for each purchase and sale.
Trading requires extensive and specialized knowledge related to the financial market, a lot of time to follow the news and check the market situation, and high analytical skills. For this reason, trading can be considered a difficult, exciting, time-consuming task and requires a risk-taking spirit. You may also have mentioned the trader as an investor. However, differences can also be observed between them. An investor usually has long-term goals in his transactions and keeps the assets obtained from transactions and digital currency.
Long-term trader (Position Trader)
Long-term traders of the trading strategy carry out trading positions with longer life and bigger profits are included in their goals. Therefore, daily news and small market price fluctuations do not affect the long-term trader's decision-making, and their analysis tools are different from other traders. If you want to know what the analysis tool of this trading style is, you can refer to two important tools such as fundamental and fundamental analysis.
But what is the main purpose of increasing the lifetime of the deal? Traders usually start buying at the lowest price and wait for the perfect opportunity to sell at the highest price. It should be noted that this opportunity and situation may come after a few days, weeks, months, and even years, and it requires a lot of patience.
How to short digital currency
When should you go for a long position?
As we mentioned above, traders go for Long Position when the price of their chosen cryptocurrency increases. You should also make money according to the time frame and the prediction of the increase in the price of your chosen cryptocurrency. Suppose you normally trade based on the daily chart and by following the data and trades, you have come to the conclusion that the price of your chosen cryptocurrency may rise in the next few days. In this case, you can consider a long position as a suitable way to earn profit. You will have two ways to do this; Either you should use Spot Exchanges or you should go for derivatives Exchanges.
Can we make good profit by shorting bitcoin?
Now that you are familiar with the concept of shorting crypto in 2022, do you think it is possible to make a good profit in this way? What about when bitcoin price volatility becomes less? It is interesting to know that there is a tool called Leverage in the future contract that allows people to borrow from this system.
This increases your order power without increasing the available capital and provides exponentially more profit depending on the amount of assets you want to leverage. However, be aware that if your analysis doesn't come out right, your losses will increase by the same amount.
There are at least three scenarios where shorting does not yield the expected profit
The price goes up: This is the most unpleasant scenario. In this case, if the price continues to rise, one may lose all his money; Because, as we said, there is no ceiling for losses in the shorting crypto mode, and the losses will continue until your assets are exhausted.
The price remains constant: this also shows that the trader did not predict the development of the situation well and did not analyze the current trend of the token correctly. The price has not decreased, but has remained in the same price range, and the trader has not made a significant profit or loss, but must return the interest on the borrowed token.
The price decreases, but less than our prediction: in this case, the trader's profit is so low that he cannot even compensate for the exchange commission and fee, and he may either make a very small profit or even be forced to close the position at a loss.
For example, you short a crypto at the price of $50 and the price has dropped to $48 and it is not going to go lower; The upward trend may start again and the trader is forced to close the position in order not to incur losses and keep the same amount of small profit. With this price difference, his profit will be $2 per unit, and a large part of this money will be taken as an exchange fee.
What is Short Squeeze and how does it affect our transactions?
The pressure of short positions occurs when we see a sudden increase in buying pressure and short traders are trapped and forced to cover their trading positions. This leads to a sharp increase in prices. What makes a short squeeze a volatile event is the sudden rush of traders to cover their short positions.
When does short squeeze happen?
Short squeeze occurs when we have a sudden price increase due to buying pressure. If you are familiar with digital currency trading, you know that short trades are high-risk trades. The sudden rush of traders to close their short trades and place buy orders causes a short squeeze. Short squeeze can occur in any financial market where short trades are possible. At the same time, not being able to make short trades in the market can also lead to the creation of large price bubbles.
A prerequisite for the occurrence of short squeeze can be shorter trade positions than long trades. For this reason, the ratio of the number of short to long trades is a useful tool for traders who want to have a good view of market sentiment. In the Binance exchange, there is a tool that displays the ratio of short to long transactions. Some professional traders are looking for the possible opportunity of a short squeeze. In this situation, they open a long trade and profit from the rapid rise in price.
The dangers of Shorting crypto
Although it is very nice to make a profit when the market is down and when most traders are suffering, you should note that there are many risks involved in entering a short position.
The most prominent risk of shorting crypto in 2022 is the possibility that you will be wrong in predicting the market; Unexpected news or an important variable that you have ignored can easily change the market and make it rise. Many professional traders have fallen into this trap and lost all their assets by going short before the price goes up.
The key to increase the efficiency of long position and short position
Margin trading can increase the return of long position and short position thanks to the use of leverage. The correct use of buying or selling position is profitable in any case; Especially if the value of a cryptocurrency is implemented at a time of instability! However, professional traders use margin trading, which carries more risk, to maximize this profit.
How to create a short position in the Binance exchange
You can use different methods to short Bitcoin or any other digital currency in Binance.
Short position in Binance Margin Trading
Follow these steps to short in Binance margin trading:
- If you are new, open a margin account on Binance exchange.
- Go to the Binance Margin Trading platform.
- Select your desired currency pair (eg BTC/USDT or BTC/BUSD).
- Then, follow the Binance margin trading instructions.
Asiasignal’s VIP channel helps traders
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Among the specializations of the process of earning money in the crypto market is the analysis of cryptocurrencies, which is the reason for the movement of various currencies, including Bitcoin. Bitcoin is the leader of all coins and it is he who determines the trend of other coins. The best digital currency analysis channel is actually Asiasignal’s telegram channel, which is always providing services in the field of signal analysis and presentation with detailed training and current trends of the digital currency market which is very effective to short crypto.
How to short crypto?
People who do this often do not have much knowledge about shorting crypto and without real ideas, they are only looking for profit at any price; When using short positions in trading, you should remember one simple rule: even if the value of the token you want is halved, you will earn 50%; But if the price doubles, your loss will be 100% or double. Therefore, you should be very careful in this game; Because the rapidly changing cryptocurrency market has surprised even experienced traders many times.
In general, short selling trades prevent the value of a token from increasing irrationally during a bull market; Because as soon as the traders come to the conclusion that the value of a token is more than its real value, they start shorting crypto in 2022 and the price may go down; But you should know that shorting in general is a risky business, because it contradicts the market's goal, which is growth in the long term.
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