Bitcoin’s recent meteoric rise has left many investors wondering what the best way to enter a short position is. There are several ways this can be accomplished, and in this post, we are going to look at what these are. To gain a further understanding, read more on this website as it contains useful information.
What Is Shorting?
Traditionally, shorting involves arranging to buy an asset at the market price and selling it. After a period of time, you repurchase the bitcoin and return it to the owner of the asset. If the price has fallen, you keep the difference and make a profit. Conversely, if the market price has increased for the asset, you have to buy the asset and return it for the higher price making a loss.
For example, you buy 1 Bitcoin at $5000 market price and sell it. A few weeks later, the market price is $4000. You repurchase the Bitcoin, return it to the buyer and make a $1000 profit. $5000-$4000, = $1000 profit. Brokers such as BestBitcoinBroker.net will help you find ways to short bitcoin.
Should the price increase you would have to repurchase the bitcoin at the higher price and subsequently you would have made a loss. The issue here is that finding someone willing to sell the currency is difficult and that even if they do, they can recall it any time leaving you to accept the current price.
There is an alternative to traditional short trading, and that is called derivatives trading. Rather than borrowing Bitcoin, you are betting on the direction of the market. The two main options for derivatives trading are:
- Spread betting – Here you bet on which direction the bitcoin market is heading to. If you open a short bet position, you are hoping for the price to decline. Your profit will be calculated in the same way as traditional short selling.
- CFD – This is an agreement to exchange the difference in price from when a position is opened until it is closed. With a CFD, your profit or loss is calculated at the market prices at the start of the open position compared to when it is closed. So if it was the same as our earlier example, your profit would be $1000. If the closing market price is higher than the opening market price, however, you would owe money as before.
Both are leveraged, which means you put down a percentage to start the trade. This means you only have to put down a deposit known as a margin in the first instance. So if the margin was 50% of $5000 you would put down $2500.
For more information on Bitcoin and shorting it is an excellent idea to visit Investopedia and read the information.
Generally, to short Bitcoin, you have to study the market to minimize the risks. If the market should suddenly rise, you could find you are out of pocket. Given market fluctuations, this could be quite severe.
If you do feel confident, however, and things go your way, then you could see yourself gain a handsome profit.
If you are interested in even more business-related articles and information from us here at Bit Rebels then we have a lot to choose from.