Going Long vs Going Short in Cryptocurrency Trading

Key Takeaways

• The cryptocurrency market attracts many investors due to its novelty and opportunities.
• Traders are drawn to the price action and volatility of digital assets.
• Stories of insane returns on various coins are common in the crypto space.
• Cryptocurrencies can experience both price increases and decreases.
• Market trends influence the value of crypto assets over time.
• Traders can leverage both upward and downward market movements.
• Margex is a crypto exchange that allows investors to use leverage to maximize trading profits.

The cryptocurrency market has caught the attention of many investors due to the novelty of the assets and the numerous opportunities they provide traders in terms of the price action and volatility that these new digital assets are now best known for.

You’ve probably already heard plenty of stories about the insane returns of various coins, be it memes or cryptocurrencies, that will shape the fintech world in the future. But a coin can’t just keep going up, right?

You’re right, it can’t. Every crypto has periods where its value goes up, and correspondingly periods where its value goes down. Let’s take a look at how a trader can take advantage of both market movements with the help of Margex, a crypto exchange that allows investors to use leverage and maximize trading profits.

What is a long position in crypto trading and how does it work

Long position is essentially when a trader predicts that the value of the cryptocurrency will go up in value. This type of position goes well in pair with a bullish market movement and consists of buying an asset such as cryptocurrency and selling it later for a profit. In short, a long position in crypto trading can be described as buying low and selling high.

Pros of a long position

✔️ Allows traders to profit from bullish market movements
✔️ Considered less risky in the long term as most assets have positive price performance over long periods of time.

Cons of a long position

❌ You’re prone to negative market news that could affect your long
❌ The longer you wait, the more exposed you are to the possibility of market sentiment changing from bullish to bearish

Let’s create an example of a position where you go long, and for this we’ll assume the price of BTC is $10,000.  After careful analysis, you decide that BTC is ready to go up, and you establish a long position for 10 Bitcoins. The total capital required to open such a trade would be 100,000 USD.

Once BTC reaches 11,000 USD, you decide to close the position and book a profit equal to the difference between the buy price and the sell price. In our example, this would give you a profit of $10,000.

Alternatively, you can use Margex to your advantage and, by using 20 times leverage, establish the same long position with 20 times less capital required. Thus, the cost of opening a position of 10 BTC that has a total order quantity of 100,000 USD would require a margin of only 5,000 USD in your account.

Once BTC reaches 11,000 USD, you can close the position and book a profit of 10,000 USD, the main difference being that you have only risked 5,000 USD as opposed to 100,000 USD without the use of leverage.

What is a short position in crypto trading and how does it work

A short position is the opposite of a long trade. It is notorious for allowing investors to remain profitable even in bear market movements and consists of borrowing an asset, then selling it on the open market and buying it back later at a lower price, keeping as profit the price difference between selling at a higher price and buying it back later. Short positions allow the sale of an asset for a speculative reason without having purchased it before. Briefly put, short trades can be described as selling high and buying back low.

Pros of a short position

✔️Allows traders to profit from bearish market movements

✔️Gives you the opportunity to sell an asset without owning it and profit from the price difference when you buy it back.

Cons of a short position

❌ Market conditions can change and cause you to lose money
❌ Can be more susceptible to volatility

Let’s say you think BTC is overvalued, and you want to bet against it. Suppose also that the price of one bitcoin is $10,000. To do this, you would open a short trade with 10 bitcoins for a total position size of 100,000 USD. Since you borrowed 10 bitcoins and sold each of them at 10,000 USD, and now the bitcoin has depreciated to 9,000 USD, you can profit significantly from the price difference.

You close out your short position, return the borrowed bitcoins, and are left with a profit of USD 10,000 since the 10 borrowed bitcoins are now worth a total of USD 90,000 compared to USD 100,000 at the time you borrowed them.

Because it is not easy to set aside 100,000 USD to trade with, let us now add leverage to the deal. By adding 20x leverage, the total cost of opening a position with 10 bitcoins will now cost you 5,000 USD instead of the original 100,000 USD compared to not using leverage.

How to long crypto on Margex

Step 1: Open an account with Margex

The process of opening a Margex trading account is quite simple. Simply click on the “Start Trading” button located at the top of the page. Enter your email and password and click on “Register”. Once you confirm your email, you can log in to your account.

Step2: Fund your account

To start trading, you will need funds in your wallet. To fund your account, go to the “Wallet” section of the top menu and click “+Deposit”.

From there, select your preferred cryptocurrency and complete the deposit process.

Step 3: Start trading

Head over to the “Trading” section of Margex and get started by selecting your trading pair. Once you’ve selected which cryptocurrency you’ll be trading, you’re ready to execute your order using the trading terminal on the left side of the trading chart. Once you have performed a market analysis and selected your entry point, you are ready to enter your order size and leverage.

Click BUY/LONG to open a long trade, and start monitoring your trade from the position box below. Once you are satisfied with the trade, simply close it.

Tips: By hovering over the question mark in each field, you will get detailed information about your order and how much of your capital is at risk. For better risk management when working with leverage, it is recommended to use protective orders such as stop-loss and take-profit

How to short crypto on Margex

Opening short positions on Margex is relatively easy and follows the same pattern as opening  long ones.

Step1: From the top menu of the “Trade” page, select a trade pair that you think will decrease in value.

Step2: Enter order details, such as Position Size (leveraged), and use the leverage slider or the small pen next to it to enter custom leverage.

Step3: Click Short/Sell, double check your order details and submit the order. Once you are satisfied with the outcome of the trade, proceed with closing the trade and collecting the profit using the “Open Positions” tab below the trading chart.

Key Differences Between Long and Short Trading

Long and short in crypto trading refer to two different methods employed in an attempt to take a profit, according to your theory about whether the price of a coin will increase or decrease.

Going long implies that you anticipate the value of a digital currency to appreciate. You purchase it and hope to resell it after some time at the increased price. It is the most popular form of trade between people. Suppose you purchased Bitcoin at 30,000, and it increases to 35,000, you get to make a profit of 5,000 when you sell.

Going Short implies that you anticipate that the price is going to fall. You take the crypto on loan, and you will sell it at the prevailing price. Then you wait until the price goes down, buy it again at a cheaper price, and resell it back making a profit of the variation. Take an example, when you sell short Bitcoin at $30000 and it falls to 25000, you can now buy it and gain $5000.

Both options are profitable in that short trading is riskier, particularly to those who are families in short trading. Should the price then go in the opposite direction, then losses may be large and even more than you put in it, should you use money you borrowed (leverage).

Here is a simple table to show the key differences:

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