New crypto enthusiasts may start to wonder “can I short Bitcoin?” as it is a popular term everyone should know about. Apart from shorting there are several other aspects and concepts novice parties need to know about before they step into the crypto space. However, crypto investing, trading, and everything else in between is not as simple as one might think. There are numerous factors that are a part of something even as straightforward as buying or storing crypto.
Choosing the right crypto exchange, opting for the right exchange and such details are only some of the things new crypto enthusiasts need to know before diving into something serious.
Similarly, Bitcoin shorting is something that requires the interested parties to take some time and properly understand the concept before they dive into it.
If you are interested, here are some major details about shorting that you should know about.
Can I Short Bitcoin – What to Know About Shorting
Short selling is an investment style that is most popular among people who are not optimistic about the long-term value and utility of a crypto asset. This investment style enables the interested parties in getting profits, if and when the price of a cryptocurrency goes down. Since the crypto space is a volatile and unpredictable place the prices of digital assets keep moving up and down quite unexpectedly.
This offers a vast opportunity to the short sellers to opt for this investment style.
If you are interested in Bitcoin shorting then you should know the details mentioned below.
How Does it Work?
If you want to know ‘can I short Bitcoin?’ then you should also know how it works. Understanding how it all works can help you get a better idea of whether it is something you want to opt for or not.
If Bitcoin shorting is explained simply, it is a process where you will be allowed to borrow a financial instrument or a digital asset, which is Bitcoin in this case. You can then sell it at its current price. Once you have made the trade you can pay back the person from whom you borrowed the asset.
However, in order to easily pay back the person, your trades need to go well. This will only be possible if the price of the digital asset drops after you short it. This will also make it possible and cheaper for you to pay the person back.
Considering an Example
Before learning ‘can I short Bitcoin?’ you need to fully understand the concept by taking an example.
An example is the best way for you every interested party to get a good idea of what Bitcoin shorting is and how it works.
Let’s suppose that as a short seller, the price of Bitcoin is $18k and you are short 2 BTC. This means that the two Bitcoin you borrowed will be sold for $36k.
Now the price of BTC drops to $17k and you close your position. This is possible by re-buying the 2 BTC at a lower price.
Risks of Short Selling
Bitcoin shorting is not only a complex venture but is also high-risk. Everything related to crypto space is risky in one way or another because the crypto space is a vast and unpredictable place.
The sudden and unpredictable price fluctuations can cause the short sellers to go through a lot more losses than they can handle. This is one of the biggest risks you need to know about if you want to know ‘can I short Bitcoin?’.
When you normally invest in a digital asset and its price drops you will only lose as much as you invested. The same is not the case with short selling.
While short selling, the losses can extend beyond your initial investment based on the shorting ratio you opted for. Therefore, while short selling you need to know the concept properly and choose an exchange carefully.
Can you Manage the Risks?
Regardless of what you are interested in, buying, trading, or short selling, you need to know how to manage your risks. As mentioned above, you are likely to come across some risks while Bitcoin shorting.
In such a case, you need to know that you can manage the risks by using the stop-loss function, which is what most crypto traders opt for.
This is applicable for both longing and shorting Bitcoin. Using this function means that this will be a cut-off point in your trades and will be interrupted if they are not going in your favor.
If you want to know ‘can I short Bitcoin?’ then you first need to understand what short selling is and how it all works. Once you know the details mentioned above you can proceed to determine if you can opt for it or not.