There are many ways to make a profit in the financial markets. Some traders will use technical analysis, while others will invest in companies and projects using fundamental analysis. Therefore, you as a trader or investor also have many different options to create a profitable trading strategy.
But if the market is experiencing a prolonged bearish movement and prices are constantly falling? So what can traders do to maintain a source of income without trading? Learn this and many more topics at BTC iFex 360 Ai
Shorting the market allows traders to profit from falling prices. Opening a short position can also be a great way to manage risk and hedge existing assets against price risk.
In this article, we’ll explain what shorting is, how to short Bitcoin on Binance and the risks of shorting.
What is a short?
Shorting (or short selling) means selling an asset in the hope of buying it back later at a lower price. A trader who opens a short position expects the price of the asset to decrease, which means that he has a “bearish” mood for this asset. Therefore, instead of simply holding and waiting, some traders use the short strategy as a way to profit from a fall in the price of the asset. That’s why short selling can also be a good way to preserve capital during falling prices.
Shorting is very common in almost any financial market, including the stock market, commodities, Forex, and cryptocurrencies. As such, short selling is widely used by retail investors and professional trading firms such as hedge funds. Short-selling stocks or cryptocurrencies is a common strategy for both short-term and long-term traders.
The opposite of a short position is a long position when a trader buys an asset in the hope of selling it later at a higher price.
How does the short work?
Section-by-section article can tell you in detail.
As a rule, the sale takes place at the expense of borrowed funds, but not in all cases. If you sell part of your Bitcoin spot position at $10,000, with plans to buy it back later at $8,000, that is effectively a short position. However, shorting is also usually carried out at the expense of borrowed funds. This is why the short is closely related to margin trading, futures contracts, and other derivative products. Let’s see how it works.
Let’s say you are bearish on a financial instrument such as stocks or cryptocurrencies. You deposit the necessary security, borrow a certain amount of this asset, and immediately sell it. You now have an open short position. If the market meets your expectations and goes down, you buy the same amount you borrowed and pay it back to the borrower (with interest). Your profit is the difference between the initial sale price and the repurchase price.
Now let’s look at a more concrete example. You borrow 1 BTC and sell it at a price of $8,000. You now have a short position of 1 BTC on which you pay interest. Bitcoin market price drops to $6,000. You buy 1 BTC and return that 1 BTC to the borrower (usually an exchange). In this case, your profit will be $2,000 (minus interest payments and commissions).
