Learning What is Shorting Bitcoin, How it Works and More

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Learning about shorting Bitcoin can be quite helpful and beneficial, especially if you are interested in the flagship cryptocurrency. Bitcoin is the world’s largest crypto asset and the originator of the crypto industry. For this reason and several others, a lot of people intend to invest in it and eventually trade it.

However, the price movement of the crypto king is also associated with a lot of unpredictability and volatility, which makes it difficult for people to trade and benefit from it. Even though the benefits of trading are never guaranteed there are ways for people to have a better experience. One of the ways is to opt for short selling.

If you want to properly understand what shorting BTC is and if you want to know ‘can I short Bitcoin?’ then you need to know the detailed information mentioned below.

What Does Shorting Bitcoin Mean?

Shorting or short selling is an investment strategy that is opted by people who are not optimistic about the price surge of an asset, Bitcoin in this case, in the long-run.

Since there is a lot of volatility seen with the price movement of BTC, it provides ample opportunities to all interested parties to both long and short the flagship digital asset.

According to this investment style, the crypto enthusiasts can make money as Bitcoin’s price drops. A detailed look of how it works is mentioned below.

How Shorting Works?

The basic idea of this investment style is that as a crypto enthusiast you can borrow an asset (Bitcoin) and then sell it at its current price. As a short seller, you would have to pay back the person you borrowed the asset from at a later date and pay whatever the difference is.

In order for it to be not so financially burdening for you to pay back the person you borrowed from, you need to have a profitable trade. This is possible if the price of Bitcoin drops after you short it.

Example of Shorting BTC

Learning about shorting Bitcoin can be easier if you take a look at an example. Considering an example is a good way to properly understand different concepts, especially if they are complex like shorting.

Now let us suppose you are a BTC enthusiast and the price of the flagship cryptocurrency is $8,000. At the time, you want to short 2 BTC. This would mean that the 2 BTC you have borrowed will be sold at $16,000.

Now let us consider that the price of the crypto king has dropped and is now at $7,000 and you have to close your position.

This would be done if you re-buy the 2 BTC you borrowed at a lower price, which would be $14,000.

According to this information, your profit will be calculated as such:

$16,000 – $14,000 = $2,000

Understanding the Risks of BTC Shorting

If you want to know ‘can I short Bitcoin?’ then initially you need to have the details mentioned above. However, learning about the concept does not stop there.

You also need to know about the risks of shorting Bitcoin, especially if you are interested in opting for it. You will always come across risks, whether you are buying or trading crypto. However, the difference is that the risks you may face for shorting BTC may go beyond what you invest in it.

In other words, when you generally invest in BTC and its price drops, you will only lose the amount you invested in it.

On the other hand, the amount you will lose if things do not go well while shorting BTC can go beyond the amount you invested because it depends on the leverage ratio that you opt for.

Can you Manage the Risks?

The best way to go about something new and risky such as BTC shorting is to be mindful of risk management tips as well.

If you know how to manage your risks then short selling Bitcoin can be less complicated and risky.

One of the ways people try to limit their losses and risks while shorting Bitcoin is by using the stop-loss function. As per this function, there is a cut-off point that is ensured and implemented in case your trade does not go well. This prevents the traders from losing more than they can afford, which is limiting losses, in other words.

Therefore, if you are a BTC enthusiast and want to short the crypto king then you need to know the details mentioned above.

Conclusion!

Shorting Bitcoin can be much easier to understand and opt for if you are aware of some essential and helpful details. To fully understand what shorting is and how it works, you should know the details mentioned above.

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