Shorting Bitcoin and cryptocurrencies is essentially a strategy for traders who think the price of a trading instrument is going to fall, and then proceeds to trade and profit from this. Therefore, it’s a contrast to the typical strategy of buying low and selling high, because shorting on bitcoin is about selling high and buying low to profit from the cryptocurrency price change.
Trading cryptocurrencies via CDFs (Contract for Difference) allows speculation on a market’s rise or fall, without the need to own the underlying asset. Two parties are involved in these transactions: The broker and the trader. In the end, they exchange the difference between the cryptocurrency price at the start of the contract and the price at the end.
So, essentially, the trader is paying the difference between the opening and closing price of the cryptocurrency they’re trading. The relative ease of entering and exiting positions, in comparison to other trading means is one of the reasons why short-selling cryptocurrency CFDs is highly popular right now.
What are the benefits of shorting cryptocurrencies with CFDs?
Shorting cryptocurrencies with CFDs brings the following benefits:
- Security: Trading using a cryptocurrency CFD broker gives peace of mind as these are regulated companies who will look after your funds
- Leverage: Retail traders can trade up to twice their balance on a position while professional traders can do so at up to five times their balance
- Multi-directional trading: You can trade both long and short on all cryptocurrency CFDs and don’t need to hold crypto assets to do so
- Access to superior risk management tools such as take profit levers and stop-loss orders to reduce the risk, as well as using risk management techniques when executing trades
- A broad range of cryptocurrencies are available
- Trading takes place 24/7
- Using the latest in trading platform technology like Meta Trader 4.
Similarities with cryptocurrency CFDs and Forex
One particular advantage of trading cryptocurrencies is the similarity between this and other financial markets like Forex (Foreign Exchange). CFD trading and Forex trading both make it easy for traders to enter or exit the markets when these in the process of rising and falling.
CFD and Forex trades are also carried out on the same platform, with similar charts and methods of pricing. Additionally, these are executed over-the-counter (OTC) (i.e electronically, with no actual location or central exchange). For both types of trading, the only cost is the spread, compared to other kinds where commissions and fees can be charged.
Furthermore, neither CFD nor Forex trading relies on the trader owning the underlying asset. Instead, the name of the game is speculating on the exchange rate. Frequently, mass decisions (by all those who are trading) lead to patterns being established and these can sometimes be spotted to help predict the future behaviour of the market.
The low-down
Shorting Bitcoin is essentially taking a bearish view on the prices with the aim of profiting from a falling market. This is just one of the advantages of shorting cryptocurrencies via CDFs.
This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.