How to Short Crypto? Beginner's Guide to Short Selling Cryptocurrencies

The crypto market has never been a place of disappointment. In minutes, prices may soar up, and just as fast, prices may plummet. Whereas the majority of the population enters the world of cryptocurrency with the hopes of making a successful purchase at a low price and selling it at a higher price, some seek to make a profit even when the market experiences a decline. That is where shorting crypto enters the picture.

You may hear traders stating that they are short on Bitcoin or Ethereum but what the heck does that imply? And how do you do it without being wrecked by a price sudden rise?

This article will simplify all you need to know about shorting cryptocurrency, including what it is, how it works, the platforms available, and the risks of shorting cryptocurrency. Alright, so let us begin.

What does shorting crypto mean and how does it work?

Shorting crypto implies that you speculate the value will decrease instead of increase. Suppose the price of Bitcoin is $40,000. In case you think that it will fall shortly, you may borrow Bitcoin on a crypto exchange or trading platform and sell it at the prevailing market price. Then, when the cryptocurrency price falls, say to $35,000, you repurchase it at the lowered price, give back the borrowed Bitcoin, and keep the difference as profit.

It seems to be magic, yet it is not. It is simply short selling, which is a trading strategy that has existed in the stock market over decades and now found its equivalent in the cryptocurrency market.

Crypto shorting

Crypto shorting is simply a technique that allows traders to sell a cryptocurrency at a high price and then buy it at a lower price. To enter a short position, traders will need to borrow cryptocurrencies from a broker and then sell them on an exchange at the current price of the cryptocurrency. The trader’s only responsibility is to wait for the cryptocurrency’s price to fall and repurchase it in order to repay the broker.

For example

For example, Bitcoin is currently trading at $42,000 on the open market. Suppose a trader predicts that the price of bitcoins will fall dramatically in the near future to $30,000. All they have to do is borrow bitcoin from a broker at the present market price and sell them on an exchange. After that, there is a period of waiting. If the price decreases as forecasted, the trader purchases at the lower price and then returns the borrowed cryptocurrency to the broker. Though this technique may not be appealing to all crypto traders, those who are willing to put their money at risk to profit from a successful price prediction against their chosen cryptocurrency stand to earn.

Longing crypto

Longing crypto is the complete opposite of shorting. It involves purchasing cryptocurrency at a cheaper price and holding onto it to sell it at a higher price.

Why should you short crypto with Margex?

With the easiest-to-use UI in the industry, Margex offers a broad range of powerful tools to harness your trading and boost profits. This is why the trading platform has been nominated by Finance Magnates as one of the top crypto margin trading exchanges. According to Finance Magnates, Margex is the easiest platform for trading derivatives. Some key advantages of Margex include.

Balance Protection

Negative balance protection ensures that your total account balance never stays below zero.

Price Manipulation Protection

Margex has the MP Shield™ System in place to protect clients from the drawbacks of price manipulation and unfair liquidations.

Cross Collaterals

Trade all available pairs without the need to own any of the underlying assets. Settle trades on all pairs in your chosen collaterals

No Entry Barrier

Minimum deposit of $10, and a minimum trading order size of $1

No hidden commissions

All fees paid are on-display in your live orders. Margex gives you honest RoE and PnL calculations in real time.

Variety of Deposit Options

Fund your account with a variety of deposit options ranging from BTC to the best DeFi cryptocurrencies and stable coins.

Ways to short crypto

The popularity of trading crypto derivatives has surged over the past few years, mainly because of platforms like Margex that give anybody interested the ability to trade crypto derivatives. Here are a few methods for shorting that you can use:

Margin Trading

Although there are many methods of shorting cryptocurrencies, the most straightforward approach is using a margin trading platform. Margin trading allows an investor to borrow money from a broker, which can result in either increased profits or losses for the investor.

Short-Selling

When short-selling cryptocurrencies, you sell them at the current price, wait for the price to decrease, and then purchase them back at a lower price.

Perpetual Swaps

Perpetual swaps allow traders to open large positions with little capital without an expiration date, meaning open positions can remain open as long as margin requirements are met. These types of contracts allow traders to use up to 100 times leverage. Perpetual swaps require a lot of liquidity to ensure that the largest orders are executed without creating slippage in the process. Margex’s aggregated liquidity, which combines multiple liquidity providers into a single order book, allows traders to use high leverage and short sell without worrying about slippage and price mismatch.

How to short crypto on Margex

Margex is an intuitive crypto derivatives exchange where traders can Long or short Bitcoin and other cryptocurrencies up to 100x leverage. When you anticipate a crypto asset to decrease in price, you can short it on Margex and make a profit when it falls.

This is how you short crypto on Margex, starting with creating an account to exiting a short position in a secure way.

Step 1: Create an Account on Margex

• You will be required to sign up before you can open any trade.
• Visit https://margex.com.
• Press the button with the trading or register text.
• Type your email, come up with a strong password, and validate your account.
• No KYC is mandatory except if you want to verify to increase the withdrawal limits.

Note: It is advised to use a password that is hard to guess, as well as turn on 2FA (Two-Factor Authentication) just in case.

Step 2: Deposit Funds

In order to short crypto, you will be required to deposit funds into your Margex account.

• On the top menu, click on “Wallet”.
• Select the currency in which you wish to make a deposit (e.g., BTC, USDT, ETH).
• Copy or scan your Margex wallet address.
• Move crypto out of your external wallet or exchange.

As soon as the deposit is seen on the blockchain, your balance will be replenished on Margex.

Step 3: Visit Trading Interface

When your funds are at your disposal, go to the “Trade”.

• On the top menu, click on Trade.
• Choose the crypto trading pair to short, such as BTC/USD or ETH/USD.
• On the screen, you will have a price chart, order book and trading panel.

Margex now offers perpetual contracts on the largest crypto assets, such as BTC, ETH, LTC, XRP, etc.

Step 4: Place a Short Trade (Open a Short Position)

Now you’re ready to short crypto. Here’s how:

A. Choose Order Type:

Margex supports multiple order types:

• Market Order is essential for executing buy or sell trades efficiently.: Executes immediately at the current market price: Executes immediately at the current market price.
• Limit Order: Executes at a price you set.
• Stop Market/Stop Limit: Automatically triggers a market or limit order if the price hits a specific level.

For beginners, Market Order is the simplest.

B. Set Leverage:

Choose your leverage level, from 1x up to 100xleverage level, from 1x up to 100x.

• Example: 10x leverage lets you control $1,000 worth of crypto with just $100.
• Higher leverage = higher potential profit AND higher risk.

Be cautious: Start with low leverage (2x–5x) if you’re new to shorting.

C. Enter Your Trade Amount:

Input the size of your trade-in USD or BTC terms.

D. Click “Sell/Short”:

After confirming your settings, click “Sell/Short” to open your position.

You’ve now entered a short position, meaning you’re betting the crypto price will drop.

Step 5: Manage Risk with Stop-Loss and Take-Profit

Risk management is essential in a volatile market.

• Stop-Loss: Automatically closes your trade if the price goes against you.
  • Example: If you short BTC at $40,000, you might set a stop-loss at $41,000.
• Take-Profit: Automatically closes your trade when your profit target is reached: Automatically closes your trade when your profit target is reached.
  • Example: If you want to close your short at $38,000, set a take-profit there.

To set these:

1. Go to the “Positions” section.
2. Click on the pencil/edit icon next to your trade.
3. Set your stop-loss and take-profit levels.

Never skip stop-loss — it protects you from liquidation and heavy losses.

Step 6: Monitor Your Trade

Once your short is live, keep an eye on it through the “Positions” tab for managing your buy or sell orders. You’ll see the benefits of engaging in short selling.

• Entry price
• Current market price
• Unrealized profit/loss
• Liquidation price is crucial to understand when engaging in short selling.

The liquidation price is the point where your position is automatically closed to prevent your balance from going negative.

Step 7: Close Your Short Position

To exit the trade and lock in profits (or losses):

1. Go to your open position.
2. Click “Close” next to your trade.
3. Choose whether to close the entire position or partially.
4. Confirm the action.

Margex will “buy back” the cryptocurrency at the current market price, returning the borrowed asset to the system and crediting or debiting the difference to your account.

Advantages and risks of shorting crypto

Like everything that has to do with cryptocurrencies, crypto shorting has its rewards but it also comes with some risks. Some of these are:

Advantages:

1. You only need a small amount of money to get started
2. Shorting allows traders to leverage their assets
3. Leverage can be beneficial if properly managed
4. Crypto shorting allows traders to make profits from falling markets

Risks:

1. Crypto prices are volatile
2. Losses can be incurred if trades are not properly managed.
3. Increasing leverage can lead to bigger losses.
4. You need a margin account to short crypto.

FAQ

How much does it cost to short crypto on Margex?

Margex offers the most competitive fees and the best conditions for trading. There are two types of fees charged by Margex: trade fees incurred when performing a trade and funding fees when your position is held open during the funding rollover . The table below shows Margex’s fee structure.

Maker fee – 0.019% (for LIMIT orders)

Taker fee – 0.060% (for MARKET orders)

Is it possible to short crypto?

Yes, many exchanges and platforms allow traders to short crypto, either through margin trading, futures contracts, options, or inverse tokens.

What is the best platform to short crypto?

Popular options include Binance, Bybit, Kraken, and OKX. Choose based on your experience level and the tools you need.

How to do short term crypto trading?

Focus on liquid assets, use strong technical analysis, manage risk with stop-loss orders, and stay updated with market trends.

What does shorting a crypto mean?

Shorting means selling a borrowed cryptocurrency in hopes of buying it back later at a lower price to make a profit.