What is Shorting Crypto?
Shorting crypto is the process of selling an asset first in anticipation of its price going down so you can buy it back at a lower price and realize a profit. It’s the opposite of going long on an asset, which is when you buy first in anticipation of its price going up.
When you short an asset, you’re essentially betting that the price will go down. If it does, you make a profit. If it doesn’t, you lose money. There are two main ways to short crypto: with a derivatives trading platform or through a traditional exchange with margin. Both have their pros and cons, but we believe that the best and most capital-efficient way to short crypto is with a derivatives trading platform.
How to Short-Sell Crypto
As mentioned above, the best way to short cryptocurrencies is through a trusted derivatives platform like Bybit. With this method, traders can deposit fiat (USD, EUR, GBP, etc..) or stablecoins as collateral to short a wide variety of crypto assets with up to 100x leverage. Their platform is the largest and most trusted shorting exchange since the collapse of alternatives like FTX.
You can start short-selling crypto in 4 simple steps:
- Sign up to the Bybit Exchange (no verification required, email address and password only).
- Deposit funds via bank transfer, debit card, credit card or cryptocurrency deposits like stablecoins, Bitcoin or Ethereum.
- Visit the Bybit Derivatives feature and select the token you want to short.
- Input the number of tokens you want to Short and select the 'Open Short' button.
Fees to Short-Sell Cryptocurrencies
The fees to short-sell cryptocurrencies on Bybit are very low at 0.01% per trade. There are no other hidden fees or platform usage charges. You can also take advantage of their negative funding rates, which means you actually get paid a small amount of interest for holding a short position overnight.
By comparison, the fees to short crypto on Bitfinex are much higher at 0.075% per trade + a 15% funding fee every 8 hours. The funding fee is the cost of borrowing the asset you’re shorting from other traders on the platform and it can be positive or negative depending on market conditions. You can read our best futures trading platform guide to compare fees against the top exchanges.
Risks of Shorting
Shorting cryptocurrencies is a risky endeavor and should only be done by experienced traders with risk management strategies in place. There are two main risks when shorting crypto:
- You could get margin called. This means that your position gets liquidated because the price went against you and you didn’t have enough collateral to cover your losses. For example, let’s say you shorted Ethereum at $500 with 10x leverage. The price of ETH goes up to $550 and you get margin called. This means that your position gets liquidated and you lose $5,000 (10% of your $50,000 position).
- You could get squeezed. A squeeze happens when the price of an asset spikes up or down and causes traders to get margin called. When this happens, it can force the price even higher or lower, causing a cascade of liquidations that can amplify your losses.
Both of these risks are inherent to trading with leverage and can be mitigated by using proper risk management techniques like setting stop-losses and taking profits at pre-determined levels.
The Bottom Line
Shorting cryptocurrencies can be a profitable way to trade if done correctly, but it’s also very risky. Make sure you understand the risks before you start shorting any assets and always use proper risk management techniques.
If you’re looking for a safe and easy way to short cryptocurrencies, we recommend using the Bybit Exchange. Their platform is the most trusted and largest shorting exchange in the industry. They also have very low fees and offer up to 100x leverage.