How to Short Sell Bitcoin and Cryptocurrency CFDs
Bitcoin is one of the most traded cryptocurrencies out there. However, sometimes, the market faces a downtrend and crypto prices drop. In this scenario, traders can take advantage of the downtrend by going short on CFDs. In fact, that is what short selling Bitcoin, or any asset really, essentially is.
Knowledge is power
Knowing the markets is knowing when it’s time to short sell an asset. Bitcoin has stunned the world with its price increase in the past. However, it is yet to be seen whether that will happen again. Near-term indicators fail to point in that direction. On the other hand, some traders see the price potentially doubling by the end of the year.
Some of the reasons that help traders decide to short sell bitcoin are its valuation, hedging risk, and overall skepticism towards the cryptocurrency’s potential of being bullish. Price appreciation and depreciation can also be a reason for some traders to choose a more or less volatile asset.
Analysis type can also influence the end result of a strategy. Technical analysis puts emphasis on historical BTC charts observing price trends in the past using a number of technical indicators. Eightcap has more than 30 of those, pre-installed and ready to go.
Among them, the most potent ones are moving average (MA) indicators. They can help determine the volatility by creating a trend line based on price history. MA comes with several other indicators like Bollinger Bands, which are useful for seeing if an instrument is oversold or overbought; SMA (simple moving average); and MACD (moving average convergence divergence) that shows how strong a trend is and how long it may last.
Fundamental analysis, on the other hand, can be utilized to find out the driving force behind supply and demand. News, trading and transactional activity, adoption of an asset and any related market sentiment are just some of the variables that can impact Bitcoin and other cryptos’ price. Other variables, such as bitcoin halving, the block reward from mining being cut in half every 4 years, and ‘dead’ bitcoins, or bitcoins that are inactive and considered lost, can be tackled as well, considering the finite number of bitcoins available.
Trading on margin
To delve deeper into this riskier way to approach a pessimistic-looking market, we have to point out that it can be done regardless of whether it is that of Bitcoin or other cryptocurrencies. Before hurriedly going ahead and borrowing a ton of funds from your broker, make sure that the contract consists of all the regulations related to receiving the loan in question.
These assets that you have decided to short sell have to be returned in the future. When making this step, mind the period specifying when the loaned security would have to be recalled. Market fluctuations can happen at a moment’s notice and require equally well-timed action.
Short sell Crypto CFDs
Contracts for difference are agreements to exchange the difference between the future market price of a financial instrument and its price when the position is opened. There is no specified date and this more flexible settlement tenure relies on the price more than anything else. There is also no physical requirement where the cryptocurrency has to be delivered, hence, no custody fees are applied. Upon making a purchase of a CFD that predicts BTC’s price will decline, you are going short on Bitcoin. That’s the way to short sell the world’s most popular digital currency with Eightcap.
Other ways to short sell Bitcoin
While we did mention one of the methods to short bitcoin, there are others as well. In addition to trading on margin, there are also futures and binary options.
Bitcoin and other major cryptos have their own futures marketplaces. They work on the basis of contracts, much like CFDs. The difference is that in futures, there is a specific date when the asset is to be sold. Buying is being bullish, suggesting the price will rise. Selling is being bearish, leaning in the opposite direction that Bitcoin will see a decline.
Call and put are the terms used in options trading. Shorting Bitcoin would mean executing a put order and it aims to have the asset sold by the end of the day, regardless of the change in price later on. The way to get your hands on binary options is generally through offshore exchanges. As with any other method, there is high risk. However, an advantage this method has over futures is that losses can be limited to the money paid for the put option by simply not selling it.
Trading on margin is high risk.