We all know that you can make money when the market goes up - buy some coins, sit back and wait for that ticker to go green.
But what about when the market goes down?
What if you KNOW it's going to lose value and want to capitalize on that?
I've done a lot of research on this and wanted to give you the clear and quick answer.
- Shorting Markets 101.
You're going to "borrow" the coins from someone in anticipation that you'll "buy" them back at a lower price (even if you don't own the coins).
Imagine saying to your local diamond dealer "You give me $1,000 worth of diamonds today, I'll go sell them right now and get that $1,000 in cash. Then in a few weeks I'll buy the exact same diamonds at the new market rate and pay you back."
So if the price goes down, you're getting MORE diamonds for the same $1,000. You pay back that loan and keep the profit.
If the price goes UP, you're getting less diamonds for that $1,000. You pay back the loan and then have to cover the additional cost that you owe.
You are "selling" high (using borrowed coins) and "buying" low.
- Shorting Works When You Have A Defined Time Window
You know that expression "buy and hold"? That doesn't really work if you are shorting financial markets like crypto or stocks.
The reason is because over the long term, these markets will go up in value. That's what they're designed to do (hopefully haha).
When you're shorting something like Bitcoin, you have to have a time horizon. If you think it's going to crash, you need to be able to identify WHEN and HOW MUCH the price will drop.
Of course no one knows for sure, but you need to do your research and have a plan before you start shorting coins. Otherwise you're going to lose a lot of money.
- Margin Lending Exchanges You Can Use To Short Bitcoin, Ethereum and Others
I do not short coins nor do I short stocks or options. I buy, hold then add more cash to my buying reserves for the big drops in price.
The only reason I say this is because I have not personally executed margin trades with these accounts. I've used them extensively in other ways though and they're great.
Take a look and see what you think.
GDAX - for anyone with a Coinbase account, Gdax is their trading exchange. You can use your Coinbase balances seamlessly which makes life a lot easier. You login, turn on the margin account and Boom - you're ready to make your move. Here's a link to their FAQ page (very helpful)
Kraken - also a margin trading platform that powers a lot of the price tickers you see online (like Cryptowat.ch). Kraken is similar to Coinbase in that you can deposit US dollars or Euro, then convert to crypto. The margin trading is built in. Check out their FAQ here.
Poloniex - here's where you can start to access more of the "altcoins" if that's your thing. There are tons of coins to choose from here. Take a look at their Margin FAQ here.
- Before You Go Short - Why Not Just Wait To Buy?
If you're interested in margin trading and going short, by all means go for it.
But I would be remiss if I didn't put a word of caution out there. Margin trading and trying to short coins is a hard game to win.
An alternative strategy if you think something is really going to nosedive is to simply wait it out.
When it hits the bottom, you buy up really REALLY cheap coins. Then you ride it all the way back up.
Repeat.
This is certainly less sexy and will require more patience but is much less risky.
My two cents, at least.
No matter what you choose to do, I wish you the best.