There will also be some practical examples and charts to make the concept crystal clear. If you want to make a profit when the price of Ethereum is falling, shorting can be your best friend. Shorting, or short-selling, allows you to “short” a financial instrument and profit from falling prices.
Thus, you would have shorted Ethereum and hopefully been able to profit from the coin’s descending process. This is essentially the idea that when prices fall they can only reach $0, but they can feature an unlimited rise. Thus, unexpected developments could invoke a price spike that wasn’t accounted for. With Ethereum, short selling means essentially the same thing, but with a focus on ETH. Subsequently, short selling is the process of borrowing with the intention of selling, while waiting for the perfect time to buy back the assets to be returned. Fundamentally, Ethereum is the strongest asset on the cryptocurrency market.
You can trade CFDs with cash, and the platform has a risk-free demo account that you can use to practice CFD trading without depositing money and then start using cash once you get the hang of it. Let’s have a look at some of the most popular trading platforms for shorting ETH. You don’t need to buy ETH or any other crypto to short Ethereum through a CFD. Instead, you can use fiat currency on a platform that deals with CFDs, and if your CFD short position plays out well, your gains are settled in cash immediately to your bank account. Let’s take a look at the most practical ones you can use to short Ethereum and other digital currencies.
Newcomers to the trading markets often only see trading opportunities during boom cycles when prices are rising. There are also many ways to profit from falling prices during market corrections and general bear markets. Before deciding to start shorting ETH, keep in mind that short-selling is a very risky activity, just like any type of cryptocurrency trading. However, you can lower your risks by educating yourself about crypto technical analysis and mastering essentials like recognizing price patterns and price change trends. In the derivatives section of the platform, you can access USDT or USD Coin (USDC) collateralized futures contracts, both with fixed expiration dates or perpetual versions.
When you’re entering a trading position with an estimate that a specific crypto will rise in value, you’re going long or opening a long position. When your estimate is that the price of an asset will soon drop, you’re going short or short-selling. Subsequently, protection against these downsides can come from active management.
Thereby, they increase their potential losses in the hope of the trend reversal. One of the main risks of shorting cryptocurrency is that possible losses are potentially limitless. With the regular long position, the potential maximum loss is equal to the purchase price. A short position, by contrast, has no loss limit, as the price of the asset can rise “indefinitely”.
Traditional FuturesExchanges like BitMEX also offer traditional futures contracts. Traditional futures are contractual agreements to exchange an asset at a future date for a predefined price. To short Ether, investors can sell a future contract with an end date (usually quarterly) and a predefined price. Should the price move against your position, you will receive a margin call to provide more collateral. If your collateral falls below a certain threshold, your position will be automatically sold. In the following article, we’ll explain what shorting means, how to short Ethereum, and how you can profit even in times of falling prices in the cryptocurrency market.
Understand the Future of Everything
On modern trading platforms, all of this is conducted in a fully automated fashion. All you need to do is to analyze the market and decide whether prices will rise or fall. If you think that they’ll fall, you short the market, and your broker takes care of the rest. While margin trading usually offers between 2x and 10x leverage, futures trading can multiply your gains (and losses) by up to 100x on some trading platforms.
Many experts predict that sooner or later, thanks to the active development and the asset’s unique features, ETH will take the first place by capitalization, replacing Bitcoin. Such sentiments continue to attract new users and instill optimism in long-term investors. Due to their features, options are a more complex instrument than futures, but also enjoy great popularity, especially among experienced traders. On the other hand, short trading requires active management of open positions, especially in a volatile market. So a trader should have considerable experience and certain skills of proper position management.
- Open up the daily chart of ETH and look for uptrends and downtrends in the market.
- PrimeXBT Trading Services LLC is incorporated in St. Vincent and the Grenadines as an operating subsidiary within the PrimeXBT group of companies.
- For most day traders, the short-term outlook is more important than the long-term one.
- CFDs are supported by traditional trading platforms that deal with various assets such as shares, bonds, precious metals, indices, and exchange-traded funds.
Traders should stay up-to-date on market fundamentals and important technical levels in order to prevent large losses while shorting ETH or any other cryptocurrency. The exchange even has a binary options section with Ethereum as one of the top traded assets. Subsequently, when you’ve observed your position size, you can click the “sell” button, and your trade will appear in the “positions,” portion of the platform.
Usually, a rise in the price of ETH is followed sooner or later by a significant pullback. The amplitude of such price movements has weakened over the years as liquidity increases, but bubble deflation phases occur regularly. Since November 2021, the market as a whole, and ETH in particular, have been in a bearish phase. It means that for more than a year, short-traders have been in a better position and have plenty of opportunities to open profitable short positions.
Unlimited downside potential
For investors who are more comfortable with TradFi brokers, this may be a suitable option to participate in Ether shorting. Perpetual FuturesPerpetual Futures are the most popular way to short crypto. They are contracts between two parties that agree to pay each other the price difference resulting from a defined starting price. The party being short gets paid the difference by the long party if the price falls below the starting price. Should the price rise above the starting price, the short party has to pay the difference to the long party instead. Shorting Ethereum on PrimeXBT’s award-winning platform is extremely easy.
There’s even a copy trading option, which lets you copy the derivatives trades of best-performing traders. The price of the underlying asset needs to fall below the strike price at the time of the contract’s expiration for your put option to be profitable. Platforms that support binary options allow traders to use them directly with fiat currency. The value of a put option rises when the underlying asset’s price decreases. When engaging in a put option, you need to set a strike price, which should be lower than the asset’s current market price because you want to profit from the price fall. Once you receive the loan, you open a short position by selling the borrowed assets at the current average market rate.
What are the Risks of Shorting ETH?
Finding technical levels that could benefit you is important to help you develop a high-probability trading setup. In order to short Bitcoin against Ethereum, per se, you would select ETH/BTC. Then, you would profit when the price of ETH falls in relation to the price of Bitcoin. Conversely, if you want to short against USD, then you’d simply select the ETH/USD option. Some traders can suffer from over-trading, which is overleveraging trades amidst high volatility.
- He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.
- In addition, you can take advantage of leverage and magnify your profits, even when the price of Ethereum makes a small movement to the downside.
- However, CFDs are extremely risky because users are essentially placing bets on the downward price movement of an asset when engaging in shorting through CFDs.
- Subsequently, protection against these downsides can come from active management.
In this case, the position can remain open for as long as there is enough collateral to cover the loss. Alternatively, the trader can decide to close the transaction at a loss. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.
Popular Exchanges for Shorting Ethereum
For most investors, a convenient way to short Ether is using a crypto exchange such as Binance, Kraken, BitMEX, KuCoin, among others (please note that Coinbase currently does not offer shorting). Again, technical analysis provides a clear answer to determine the short-term outlook of Ethereum. For most day traders, the short-term outlook is more important than the long-term one. The short-term outlook represents your trading horizons, which means you’re directly involved in the short-term performance of a market when opening a trade. If you’re a technical trader, the best way to short ETH is to look for high-probability technical setups in the chart.
They also need to be emotionally stable, to avoid making impulsive actions. In other words, you need to have at least $300 in your account to open that trade, or you’re at a high risk of receiving a margin call. Always pay attention to the required margin and your free margin when opening a trade with margin trading. Another way to benefit from a falling price in ETH is to go long in an inversely correlated market. Inversely correlated markets are simply markets that go in the opposite direction, i.e. when one market rises, the other market falls, and vice-versa. CMC Markets is a popular CFD trading platform with exceptional services in this segment.
This allows you not only to profit from falling prices but also to magnify your profits if your price prediction is correct. If you’re a crypto newcomer and want to start shorting crypto right away, it’s almost certain that you’ll quickly incur considerable losses. That’s because beginners lack the technical know-how regarding how the crypto market works and how to use technical analysis to find a potentially profitable shorting opportunity. The only requirement for the trader is to observe market trends and conclude whether prices could rise or fall. If you confirm that the prices will fall, you opt to short-sell and pocket the available profits.
Regulation concerns, or high market risk that could lead to an overall downturn are good instances. Conversely, staying up to date on technical analysis of Ethereum, and the best times to short sell will eventually show themselves. Although shorting is a good financial strategy, knowing when to short becomes a very tricky prospect.
A correct prediction will yield a profit equal to the difference between the ETH price at the time the CFD is purchased and the ETH price at the time the trader closes the position. If the forecast is incorrect, the trader is forced to record the corresponding loss. If the forecast is correct and the rate of the cryptocurrency decreases, the trader buys the coins back, but at a lower price. Having bought ETH that went down in price, the user returns them to the exchange. The difference between the sale price and the subsequent buy-back is the trader’s profit.
Shorting Using Margin on Exchanges
To short Ether, simply sell an ETH CFD contract at a price level and for an amount of your choice. Again, ensure that you have enough margin to absorb price fluctuations and avoid margin calls and forced liquidations. Like perpetual futures, CFD contracts are recalculated continuously and can be closed at any point in time. Leverage and margin trading magnify both your profits and losses, so make sure to follow strict risk management rules and actively manage your trades when trading with leverage. Picking the right time to short ETH is as important as actively managing your risks and open trades.
