Know How To Short Cryptos? Understand the Risks & Leverage Trading Involved!

how to short crypto


Cryptocurrencies have become a rapidly growing asset class over the past decade. They are digital assets that use cryptography to secure and control their creation, storage and transactions. Cryptocurrencies can be traded on exchanges or used to purchase goods and services, similar to cash.

Shorting cryptocurrencies is a way to potentially make a profit by anticipating the market. By shorting crypto, traders can make money when the price of the asset falls. In this guide, we will explain how to short crypto, discuss the risks and potential rewards, and provide useful tips and resources for traders who want to begin shorting cryptocurrencies.

Let’s first take a look at the basics of cryptocurrencies and how they work.

Back To Basics: Explaining How to Short Crypto

Short-selling (shorting) is a trading technique used by investors in traditional markets for decades, now it is growing in popularity within the cryptocurrency world.

In short-selling, traders bet against the market by selling an asset they do not own. The aim is to buy back the asset at a lower price and pocket the difference. If the price does not move in the desired direction, the trader assumes the losses.

Crypto traders who short sell are called ‘bears’. This is in contrast to traders who take long positions—their aim is to make profits if the price increases—these traders are referred to as ‘bulls’.

The process of shorting cryptocurrencies is an advanced trading technique that carries a high degree of risk and not suitable for everyone.

Risks Associated With Shorting Cryptocurrencies

Unlike a normal stock market trade, a short-sale requires a trader to borrow the asset from a third party such as an exchange or a broker. The trader must then return the borrowed asset at an agreed later date, plus interest. If the market moves the wrong way, the trader can end up owing money.

Shorting crypto also carries other risks such as strong countermovements. As a result, the price could easily move in the opposite direction and the trader’s account could get liquidated or margin called.

Another risk associated with shorting cryptocurrencies is price manipulation. This is particularly common with smaller cap altcoins where large players with deep pockets can manipulate the market to their advantage.

CryptoExchanges: Introduction

Cryptocurrency exchanges are online platforms where users can buy, sell, and trade cryptocurrencies. Cryptocurrency exchanges allow users to trade digital currencies for other assets, such as traditional fiat currencies or other digital currencies. They can also be used to short cryptocurrencies — meaning selling them before buying them back at a lower price.

It’s important to understand that not all cryptocurrency exchanges are the same. Some exchanges specialize in certain coins, while others offer a wide variety of coins. Some provide leveraged trading, while others don’t. It’s important to research and find one that meets your individual needs.

Types of CryptoExchanges

Cryptocurrency exchanges come in two primary forms: centralized and decentralized. Centralized exchanges are hosted by third-party firms, while decentralized exchanges are hosted on the blockchain. Each type has its advantages and disadvantages, so it’s important to research each one thoroughly before committing any funds.

  • Centralized Exchanges: Centralized exchanges are managed by a third party and have been around since Bitcoin’s launch. They enable traders to easily purchase and trade cryptocurrency by offering a range of order types and features. Centralized exchanges take longer to process transactions compared to decentralized ones, but they are generally considered to have better security and user experience.
  • Decentralized Exchanges (DEX): Unlike centralized exchanges, decentralized exchanges operate directly on the blockchain without the need for a middleman. They offer users greater control, privacy, and autonomy over their funds. However, they are slower to process transactions and lack the features of their centralized counterparts.

Key Considerations Before Choosing an Exchange

No matter which type of exchange you choose, there are several key considerations to keep in mind before selecting one. Here are some points to consider:

  • Fees: Most exchanges charge fees for trading and other services. Be sure to check out the fees associated with each exchange before committing funds.
  • Location: Different exchanges are available in various countries, some of which may have more stringent regulations than others. Make sure that the exchange you’re looking at is available in your country.
  • Security: Security should always be a top priority when selecting an exchange. Check out the exchange’s security measures, such as cold storage and two-factor authentication.

Leverage Trading – The Pros & Cons

When it comes to trading, especially in the world of cryptocurrencies, those looking to maximize their profits often turn to leverage trading. Leverage trading allows traders to borrow capital from a broker and increase their buying or short selling power. In terms of crypto, this means you are essentially borrowing cryptocurrency in order to increase your returns.

For example, a trader can decide to buy 200 Bitcoin (BTC) with 1 BTC they already own. If the price of BTC goes up 20%, the trader can later sell the 200 BTC for a gain of 40 BTC – this is due to the fact that the trader has effectively “borrowed” the other 199 BTC to increase their returns.

Similarly, traders can also use leverage trading to short cryptocurrency. This works by borrowing cryptocurrency and then selling it on the open market, hoping that the price drops. For example, a trader can borrow 100 Ethereum (ETH) and sell them on the open market. If the price of ETH drops 10%, the trader can repurchase the ETH for a gain of 10%.

Leverage trading in crypto has its advantages, such as greater returns for traders and the opportunity to leverage a smaller capital base. However, traders should be aware of the risks associated with leverage trading, such as potential losses if the crypto market moves in an unexpected direction.

In conclusion, traders should approach leverage trading with caution and always do their research before committing to such trades. Leverage trading has the potential to yield great returns, but there is also the risk of making great losses when things don’t go as planned.

Different Strategies For Shorting Crypto

Short selling, or ‘shorting’, is the practice of using borrowed capital to sell an asset with the expectation of later buying it back at a lower price. This allows traders to capitalize on short-term market movements when they identify an asset’s price is going to decrease. Though the process and strategies are somewhat similar to traditional stock shorting, there are some important differences when it comes to shorting cryptocurrency.

The two main strategies for shorting crypto are: margin trading and futures contracts. Each of these strategies carries its own risks and advantages, so it is important that traders understand the basics before venturing into the world of leverage trading.

Margin Trading

Margin trading involves borrowing funds from a broker to increase the trading size of your position. This allows you to take larger positions than you normally would and can help you maximize profits in a short period of time. Margin trading also increases the risk of loss, however, because you are exposed to more money than you have available in your account.

To short cryptocurrency via margin trading, you open a margin account with a broker, deposit your funds, and then use your leverage to open a short position. This means you are selling a cryptocurrency at the current market price by borrowing it from the broker and agreeing to return it at a later date. When you close the position, you buy back the cryptocurrency at a lower price (if the market has gone down), pocketing the difference as profit.

Futures Contracts

Futures contracts are a type of financial derivative contract that allow traders to take a speculative position in the markets without actually owning the underlying asset. You can open both long and short positions in futures contracts, which are typically settled in cash rather than physical delivery of the asset.

Unlike margin trading, where you must borrow the funds from the broker, when you enter a futures contract, you are essentially entering into an agreement with another party to buy or sell an asset at a predetermined future price. This means that you are not exposed to the same amount of risk as with margin trading.

In order to short crypto with futures contracts, you open a futures account with a broker, deposit your funds, and then enter a short position by agreeing to pay a certain amount for a set amount of cryptocurrency at a predetermined future date. If the market price has decreased by the time the contract expires, you make a profit.

Benefits & Risks Associated with Short Selling Cryptocurrencies

Cryptocurrencies are a new form of digital asset, created using cryptography and operated on blockchain networks. Cryptocurrencies enable users to make transactions with complete security and anonymity, making them popular among traders and investors. One of the investment strategies used by traders is shorting, a trading practice that allows investors to make profits from falling prices – meaning they can potentially benefit from market downturns.

Shorting or selling cryptocurrencies requires a high degree of risk management and discipline; it’s not recommended for beginners. Below we will explore why people decide to short crypto and the risks associated with it.

Why Short Crypto?

Many people think that shorting crypto is simply gambling; however, those who take an informed and considered approach to their trading strategies can use it to their advantage. Short selling allows users to capitalize on market downturns or declining prices over a certain period of time. This strategy helps traders increase their capital and hedge against future losses.

In addition, short selling can be used as a way to diversify your portfolio and minimize potential losses. By shorting various assets, traders can efficiently manage their investments and minimize the overall risk in their trading activity.

Risks of Short Selling Cryptocurrencies

As with any other form of investment, there are also risks associated with shorting cryptocurrencies. The most prominent risk is the possibility of incurring losses if the market rises instead of falling. In addition, there is the issue of volatility which presents a significant risk as crypto markets can be highly volatile. Furthermore, users should also consider the liquidity of the asset they are shorting, as it may not be possible to sell it back quickly in the event of a market crash. Finally, short selling also involves the risk of missing out on big market movements that may have long-term effects on your investments.

In conclusion, learning how to short crypto can be a great way to make money off of the volatile markets. Shorting cryptocurrency has its own set of risks that should be taken into consideration before engaging in it. When done correctly, it carries with it the potential to create income, just like any other investment. And with the right strategies and discipline, it can be an effective addition to any portfolio.

It is important to note that when shorting, there is a large potential for loss and it is essential to have a good understanding of the procedure before beginning. Be sure to read up on all of the platforms available, research the different strategies, and fully understand the rules, regulations, and fees associated with shorting cryptocurrencies.

The above guide provides a basic introduction to shorting cryptocurrencies, and will hopefully equip users with the necessary information needed in order to get started shorting. While it can offer great rewards, it’s also important to remember to stay informed and maintain good risk management practices throughout the process.

Explanating Basic Terms

Cryptocurrencies can be a bit overwhelming, especially for those who are just starting out. To make it easier to understand, there are a few key terms used which are helpful to know in order to be successful when trading and shorting crypto. This guide will provide an overview of the basic terms needed to get started.

Margin Trading

Margin trading is when an investor borrows funds from a broker to purchase or trade larger amounts of a particular asset than they could otherwise afford. This allows them to magnify their potential returns, however, it also carries greater risk as they have taken on leverage.


Volatility is a measure of the amount of change that an asset, such as a cryptocurrency, experiences over a given period of time. Due to its higher volatility, cryptocurrencies tend to be more unpredictable and carry higher risk compared to other traditional assets.


Leverage refers to the use of borrowed capital, such as margin, to increase the potential returns of an investment. When trading with leverage, remember that gains and losses are magnified. A large gain or loss can happen very quickly, so understanding the risks associated is important.

Stop Loss

A stop-loss order is an order placed with a broker to buy or sell an asset once it reaches a certain price. It helps to minimise losses by automatically triggering after the asset hits a certain price level, allowing the investor to exit before further losses occur.

Pros & Cons Summary

When it comes to shorting cryptocurrencies, there are both benefits and risks associated with the process. It’s important to understand the advantages and disadvantages of this type of trading before you get started.

  • Pros: Shorters can make a profit regardless of the market trend, potentially earning high returns in a relatively short time frame.
  • Cons: Shorting carries a high degree of risk and potential losses due to leverage and market volatility. It is also more labour intensive than other forms of trading.

Ultimately, it’s important to remember that crypto shorting is not for everyone – it requires careful consideration and thorough research before embarking on this kind of investment. With the right knowledge and understanding of the process, those who choose to short could reap the rewards of the crypto markets.

Final Warnings

When it comes to shorting cryptocurrencies, there are a number of important rules and regulations that must be followed. Leverage trading involves significant risks which should not be taken lightly. It is important to ensure that any investments you make are done so in compliance with the relevant laws and regulations.

It is advised that traders only use funds that they can afford to lose when dealing with leveraged trades. It is also important to keep track of all positions, stops, margins and profits/losses with regards to open trades. Being aware of the risks associated with shorting cryptocurrency is essential to creating a successful strategy.

It is also important to consider the taxation and regulation of the jurisdiction in which the trader resides. Regulations may differ across countries, so it is important to know your rights and obligations before entering into any trades.

It is also important to understand the historical price movements of cryptocurrencies and identify any patterns or trends. This will give traders an indication of potential future price movements and can help inform decisions around trading strategies.

Lastly, it is important to consider how investing in cryptocurrency relates to other assets held in your portfolio. By conducting research, learning from others, and understanding the risks involved, you can ensure you are taking the best approach for your individual needs.


For those new to trading and cryptocurrencies, the following terms may be unfamiliar. To better understand the mechanics of shorting crypto, it helps to know a few key terms:

  • Margin Trading: This is a type of trading which allows traders to enter larger positions than would normally be possible with the capital they have available, by lending additional funds from the exchange. It is leveraged trading, meaning that even small price movements can lead to large profits or losses.
  • Volatility: This is a measure of how much the value of a cryptocurrency rises and falls. Highly volatile cryptocurrencies can see huge fluctuations in value, meaning there are more opportunities to make money (or lose it).
  • Liquidity: This refers to how easily a cryptocurrency can be bought or sold. Cryptocurrencies with high liquidity will usually have more buyers and sellers, making it easier for traders to enter and exit positions.
  • Short Selling: This is a way of making money when the price of an asset falls. By ‘shorting’ the asset, you are essentially betting that the price will go down, allowing you to buy it back at a lower price to make a profit.


If you want to dive deeper into the process of shorting cryptocurrencies, there is a range of helpful platforms and websites that offer more information. Below are some of the resources available for those interested in learning more:

  • Platforms: Kraken, BitMex and Binance are some of the most popular crypto trading platforms which offer leverage trading and offer stop-loss features to protect your positions.
  • Websites: Sites such as Reddit, Crypto Potato, Tradingview and Cryptoslate are a great way to get a full insight into the crypto market news, updates and opinions on cryptocurrencies.
  • Professional Support:It is wise to consult with a legal professional, financial advisor and accountant before engaging in any cryptocurrency trading, particularly if it involves margin/leverage trading.
  • Commentators: There are a number of reputable commentators in the crypto space who share their views openly online, including; Andreas Antonopoulos, Dan Held and Tone Vays.

Ultimately, when shorting cryptocurrencies, it is important to gain an informed understanding of the market and its mechanics. All traders should ensure they understand the risks involved before taking any trades.

Frequently Asked Questions

  • Q: What is cryptocurrency?
    A: Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. It is decentralized and not regulated or controlled by a central bank or government.
  • Q: How do I short cryptocurrencies?
    A: Shorting cryptocurrencies means selling an asset that you don’t own and then buying it back later at a lower price to make a profit. This can be done through certain crypto exchanges, which provide the ability to buy and sell digital assets using leverage and margin trading.
  • Q: What are the risks associated with shorting cryptocurrencies?
    A: Shorting cryptocurrencies carries a number of risks, including volatility in the market, unexpectedly large fluctuations in price, and the risk of liquidation if an insufficiently funded account is overleveraged.
  • Q: What is leverage trading?
    A: Leverage trading involves borrowing funds from a broker to increase the size of a trade and therefore the potential for profits. It also increases the potential risk because large losses can occur if the trade moves against you.
  • Q: What strategies can I use when shorting cryptocurrencies?
    A: When shorting cryptocurrencies, some strategies include scalping, leveraging, hedging and arbitrage trading. Each has its own benefits and risks and should be used cautiously. Scalping involves taking quick, multiple trades with the goal of profiting from small price movements.
  • Q: What are the benefits and risks of shorting cryptocurrencies?
    A: The main benefit of shorting cryptocurrencies is the potential to make profits from downward market movements without actually owning the asset. However, there are significant risks associated with this approach, such as the possibility of the market moving in the opposite direction and your position being liquidated. It is important to understand these risks before engaging in such trading.
  • Q: Where can I find more information about shorting cryptocurrencies?
    A: There are a number of resources available online for those looking to learn more about shorting cryptocurrencies. Exchange websites provide detailed information about margin and leverage trading, and professional traders offer guidance in the form of courses, blogs, and books. Additionally, social media and forums are great sources of information for new traders.
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