Thinking Bitcoin could be on it’s way down? If so shorting could be very profitable.
By short selling, you can not only protect your investment, but also make money.
Most people think that the only way to make money with Bitcoin is by buying it and HODLing.
But that’s simply not true.
Michael Burry made hundreds of millions shorting the 2008 financial crisis.
This guide will break down how you can use short selling in the Bitcoin market to profit.
How To Short Sell Bitcoin
If you’ve never shorted before, then following my steps below will have you up and running in 4 minutes.
1. Pick an Exchange
The first step is to pick an exchange that we can trade on.
Not every exchange will allow you to trade futures contracts and short sell Bitcoin.
Below are 3 of my top cryptocurrency exchanges will allow short selling.
2. Sign up to Exchange
Once you’ve picked an exchange, sign up for it and verify your account.
You can then use the fiat or cryptocurrency deposit methods to get money onto your account.
I will be using FTX in my example today.
FTX is my favorite exchange for margin trading cryptos and short selling.
You can read my full review on FTX to see if the exchange is for you.
3. Navigate to the Trading Page
Now you’ve setup your account and ready to go, we need to navigate to the trading page.
To do this look in the top left of your screen and click on “Markets”.
You should now see several tabs located along the top. These will include: “Futures”, “Spot”, “Stocks” and more.
We will be using “Futures” to short sell Bitcoin, so make sure you’re on that tab.
Next we need to find the Bitcoin Perpetual Futures Contract.
As one of the contracts with the highest trading volume, it’s most likely to be at the top.
If not scroll down and search for it.
The ticker is: BTC-PERP.
Once you’ve located it click on the “BTC-PERP” ticker.
4. Setup your Max Account Leverage
You should now be on the trading page that let’s us buy and sell the BTC-PERP contract.
When trading this contract, you are not buying the underlying asset of Bitcoin.
Instead we are trading a derivative of Bitcoin’s price.
In the bottom right of your screen you should see a tab for “Max account leverage”.
This let’s us adjust the leverage we use on our account.
Leverage is the amount of money you can borrow, relative to the collateral on your account.
If you have $100 on your account with a 20x limit, you’ll be able to open trades worth $2000.
This amplifies our profit but it can also mean losing money rapidly when our position goes against us.
I set mine at 20x by dragging the slider, but you can adjust yours to whichever limit you are comfortable with.
To be safe keep leverage under 3x.
NOTE: Leveraged trading is extremely risky.
5. Open your Trading Position
Now you’ve setup your account leverage, we can begin trading.
To short sell Bitcoin we need to be on the Sell BTC-PERP tab.
In the top right of your screen you should see both “Buy BTC-PERP” and “Sell BTC-PERP”.
Click on “Sell BTC-PERP”.
We can now choose between two order types.
Either a “Market order” or “Limit order”.
A market order will buy or sell into available liquidity until the position is filled. This usually results in higher fees, but your position is filled instantly.
A limit order allows you to adjust the price you set your order at. For example you could set a sell order at $37500. This costs less fees, but you may be waiting for your position to be filled.
For this example I’ll show you how to short Bitcoin with a market order.
Click on “Order type” and set it to “Market order”.
Now the “Price” box should state “MARKET”. You cannot adjust the price.
In the “Amount” box, you can either enter the amount in USD or BTC.
I prefer to use USD as it’s easier to calculate.
In this example I’ll enter $30 USD into the “Amount” box.
My account has collateral of $20.
My leverage will be 1.5X my account and I’ll be borrowing $10 for my position.
If Bitcoin were to go down in price, I’ll make 1.5X the normal amount.
Once you’ve setup the amount you want to short, click “Sell”.
6. Manage and Close Position
Our trading position is now open.
If you scroll down to the bottom of the page you’ll see your open positions.
I’ll explain what each thing means:
- Position Size is the size of your position in Bitcoin terms.
- Notional size is the size of your position in USD terms.
- Est Liquidation Price is the price at which your position will be automatically closed and liquidated. This means you lose your entire collateral balance.
- Mark Price is the current marked price of Bitcoin.
- PnL is your profit and loss.
- Avg Open Price is the average price that your position was opened at.
- Break-even price is the price at which your position will break even.
When you buy or sell this same contract it will add to the position you currently have.
To close your position, you can either set a limit order at a certain price or press the red “MARKET CLOSE” button. This will close out your positions at the current market price instantly.
To close your position with a limit order click on “Buy BTC-PERP”. Change the order type back to “Limit Order”.
Enter the price at which you want to close your position at. Enter the amount in the “Amount” box.
To make sure you don’t buy too much I recommend ticking “Reduce Only”.
This will make sure that your position can only reduce in size, rather than flipping and longing Bitcoin instead of shorting.
Once you’ve filled out the buy order, click “Buy” and your limit order will be set. This won’t close your position instantly, but instead it will take profit when it reaches the price point you set.
What is short selling?
Short selling is the process of selling a security you do not own, with the hope of buying it back at a lower price and making a profit.
When you short Bitcoin, you’re essentially betting that the price will go down. If it does, you make money. If the price goes up, you lose money.
Short selling can be used to profit in both a bull and bear market.
Is shorting Bitcoin a good investment strategy?
The Bitcoin price has only been climbing for years now. Price drops do happen and you can make money shorting Bitcoin if you can time it.
Shorting Bitcoin as a sole strategy will not end well. Combining short selling Bitcoin with longing Bitcoin for the majority of the time, can work if you know how to time the market or use technical analysis.
Can I short Bitcoin on all Bitcoin exchanges?
No, not every exchange will allow you to open a short position.
You can only short with leveraged trading products such as Bitcoin futures. These are offered on many cryptocurrency exchanges but not all.
You can start short selling Bitcoin assets on: FTX, Bitmex, Binance, Bybit, Kraken and more.
Can you short Bitcoin on Robinhood?
No you cannot open a short position on Robinhood.
The only US regulated exchange that allows you to short Bitcoin is Kraken.
Should new traders short Bitcoin?
It depends on your experience and risk tolerance.
Bitcoin has been on a bull run for years now and it’s not easy to time the market.
If you’re a beginner trader, I would not recommend shorting Bitcoin. If you’re one of the few advanced traders that know what they’re doing with a high risk tolerance then you can look into shorting Bitcoin.
Most traders find much easier ways to make money in the crypto market.
For those looking to utilize margin trading it’s much better to look at the long side. Bitcoin’s price is much more likely to rise than fall.
Can I short Bitcoin with options trading?
Shorting Bitcoin is possible with options trading on exchanges such as FTX.
Trading options is much more complex than trading a futures contract, but your risk is defined.
Options are a great choice for experienced traders. You can easily hedge against Bitcoin price drops by utilizing option contracts.
Short selling Bitcoin is a great when to make money when the market price of Bitcoin drops. By using margin trading and Bitcoin futures you can easily short Bitcoin.
Because you are engaging in leveraged futures trading, it is much riskier than simply buying and holding Bitcoin. This is something you need to be aware of.
If you are new to Bitcoin trading, it’s recommended to focus on buying Bitcoin and focus on spot trading instead of leveraged markets.
Overall we hope our how to short bitcoin guide helped you.