A Full Guide ▷ How To Short Bitcoin Cryptocurrency Trading | Short-selling Bitcoin at CAPEX

Short-Selling is a trading process where you earn money when the price of Bitcoins falls. In short-selling, you sell the shares at present at their current price and purchase them when their price drops in the future to make a profit. You can actually sell the shares without owning them as trading platforms allow you to borrow the shares, which you have to return at the agreed time. As you don’t own any assets here, it’s called “short” for this reason.

How to short Bitcoin and profit

In 2008 when the share market crashed and many investors suffered a colossal loss, an investor named Kyle Bass became a billionaire through Short-Selling. For example, you short sell 1 Bitcoin for $40,000. This means you borrowed 1 Bitcoin from your exchange and sold it at $40,000. In the future, the price of 1 Bitcoin drops to $30,000. You then purchase that 1 Bitcoin using $30,000 out of $40,000 in your hand and return that 1 Bitcoin to your exchange. So, you are now left with a profit of $10,000. However, with us at CAPEX, you no longer have to own Bitcoin to short and profit. You can easily short Bitcoin with CFDs in CAPEX.

On the contrary, in a simple trading or investment process, you buy shares at the given price in the present day and sell them in the future when the price shoots up to make a profit. For example, you purchased 1 Bitcoin when its price was $32,000. In the future, when the price goes up to $ 40,000, you sell your Bitcoin to make a profit of $ 8,000. Both short-selling and normal trading are profitable and also involve risks that depend upon the market situation. If you are looking for ways on how to short Bitcoin, then you do that through methods like Margin Tradings, F(Futures) and O(Options) contracts, CFDs(CAPEX CFDs), or the actual process of short-selling.

Margin trading

In margin trading, you can buy large amounts of shares at the marginal cost of a share. If you get a 10X margin on a share, this means you can buy ten shares at the price of just one. Margin trading is one of the easiest answers on how to short Bitcoin or any asset. Please also note that margin trading may seem tempting as it provides you with leverage, but the risks involved are also high. It may result in an increased profit or a huge loss. To protect yourself from the huge losses due to the highly volatile cryptocurrency market, you can set a buying stop-loss order at CAPEX, which will allow you to buy the Bitcoin at your trigger or higher set price.

Options trading

Options are a contract between two parties that allows a person to buy or sell a commodity at a fixed price and a fixed date in the future. The right to buy or sell something at the decided time is set as optional, i.e. it’s up to the buyer (or seller) whether he wants to use his right to buy(or sell) to make a profit. So, options are another way to short your Bitcoin. This will allow you to sell your Bitcoins at today’s price in the future at a fixed time, hoping the price will fall later and you’ll make a profit. Kindly note that though this seems tempting initially, the risks involved are high, and you may suffer high losses as cryptocurrency prices are quite volatile.

Futures trading

Futures are also a contract, like options, that allow two parties to transact something at a fixed price and a fixed date. But unlike options, futures made it mandatory for the parties to forward the transaction. So, there’s no option for the buyers or sellers to pull out themselves like there is in Options. If you have a Bullish mindset and feel the price of Bitcoin will rise in the future, you can buy a future contract. Oppositely, if you have a bearish perspective and think the Bitcoin market will see a decline, you can sell the futures contract.

Prediction markets

Prediction markets are another way to short a Bitcoin asset. However, they are relatively new and are not considered the best way to do that. Here, you predict the decline of Bitcoin in the future based upon your analysis. And if someone takes you up and loses, you’ll make a profit as you’ve effectively shorted your Bitcoin.

Although these are the more conventional markets, CFD traders like those who trade with us at CAPEX will have a few differences in opinions.

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Short-selling is only done when it’s expected that the share or cryptocurrency prices will decline in the near future. But the problem is no one can accurately predict the market’s ups and downs as there is no mathematical equation regulating the same. What we do know is the price of a stock or cryptocurrency at any given time depends upon the supply and demand in the market.

However, you can still analyse the market to identify specific patterns and rules that will allow you to make profits. There are mainly two ways to explore the Bitcoin market: Technical Analysis and Fundamental Analysis.

Fundamental analysis

The Fundamental Analysis of Bitcoins (or any market) tries to grab the bigger picture of the marketplace. It mainly looks at the news and events happening worldwide that may affect the Bitcoin market price. So, this primarily looks at the external forces that can affect the Bitcoin currency.

For example, let’s say any significant country in the world decides to ban the Bitcoin cryptocurrency in its land, then you can predict that very soon, Bitcoin prices are going to slash. Celebrities and famous personalities have a significant influence on the lives of people and their minds. A recent example is the one tweet from the US Billionaire and Founder of Tesla, Elon Musk, where he tweeted a picture of Bitcoin with a broken Emoji heart. After his tweet, the Bitcoin shares went down by nearly 7%. Many traders here at CAPEX predicted this drop and made a profit from Bitcoin CFD trading.

Technical analysis

As the name also suggests, the Technical Analysis looks at the technical aspects of the market by looking into the data and statistics to predict the Bitcoin prices. The main idea here is that the numbers speak for themselves. Analysing the numbers can bring out a pattern of the price shift. And this pattern then can be used to expect future Bitcoin prices. So, the technical analysis completely removes the external factors and tries to build a picture solely based on the past data trends. If you are new to trading, make sure you visit our CAPEX Academy, our online trading school, to learn in detail about trading and financial markets. You need to sign up to access our in-platform trading lessons.

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