Financial management is one of the hot topics in the market and everyone is quite engaged in the same. There is no doubt in the fact that Cryptocurrency has emerged as a digital asset. It means that you can use this for purchasing various commodities by the exchange of cryptocurrency. Further, everyone has definitely come across Bitcoin or at least heard about it. Well, it is one of the initial cryptos in the market with a high dominance structure. All though, there have been various other cryptocurrencies in the market apart from it.
However, many of you might be wondering how to short Crypto to maximize the profit. Moreover, if you are new to the stock market business, you will be hearing this term for the first time. Hence, we bring you this simple guide that covers all the major and minor aspects of crypto. Also, this will help in gaining more profits in the long run. Therefore, make sure to go through every section of the guide.
What is meant by Shorting Crypto?
First, you need to understand the concept of shorting the cryptocurrency from the aspect of the market. Shorting refers to the situation when someone believes that the price of a currency will decrease related to another currency. Therefore, stocks are sold without the need to even physically have them. Hence, you can end up being in fortune at the end of the day. Further, it depends on various factors that govern the market. The fundamentals are quite simple and can be understood by an example.
For instance, you do some research and expect that the stocks of currency A will decrease in a few months. Currently, the price for each stock is 10 cents which you believe will be reduced to 2 cents after 30 days. Thus, you develop a 1,000,000 stocks contract with someone and deals to sell him at $100,000 (current price) a month later. Fortunately, the stocks did come to the expected price. Hence, you will purchase 1,000,000 stocks from the market at $20,000 (new price) and sell them to the buyer at $100,000 (old price). Boom! You get a profit of $80,000 in a single deal and that too within a month.
The whole process might seem to look simple but has a lot of complications. No doubt that the contradiction of this situation could result in loss. You must have a wide grip of the market standards. A single miscalculation could be dangerous and you might have to pay more.
Methods to Short Crypto
Now the question arises, “How to short crypto using various methods?”. As mentioned earlier, you need to learn about the basic principles of shorting cryptocurrency like Bitcoin. Here are some ways that are quite effective in the current market scenario,
1. Prediction Markets
We will begin by discussing the prediction markets technique which is quite new from the cryptos perspective. It includes the investors making a wager on the outcome of the price of the crypto. Moreover, you need to predict the approximate margin that you believe crypto would decline. Other investors could place a higher bid than your expected price. It would lead to profit and loss accordingly. Hence, it is based on the fact that whether your prediction is accurate or not.
2. Futures Trading
Almost every cryptocurrency posses a futures market that involves buying security along with a definite contract. The contract will have information like the duration and price of the security to be sold. In other terms, buying a futures contract shows that you expect the price of the security to rise. Hence, it will be a profitable deal in the near future as you will sell the security. On the other hand, in case you sell that contract, it means that the price might come down as per your prediction. Moreover, the futures trading of crypto has become a major part of the market these days. Hence, you can short crypto by selling bulks of futures contracts.
3. Short Selling
Short selling is another way to explain how to short crypto in the market. This method involves direct purchasing and selling of crypto and hence not much appealing. You can sell the cryptocurrency assets at reasonable rates at the current time and wait for the fluctuation. Meanwhile, if the price decreases, you can purchase the stock again and refill the assets accordingly. This will give you considerable profit and the net stock would remain the same. However, if the price rises, you will either have to lose money or your crypto assets.
4. Margin Trading
Margin Trading is quite popular among the stakeholders to short crypto in the market. Margin refers to the collateral that you deposit to the broker to cover any credit risk. Hence, you need to make an initial payment that allows you to make further transactions.
Therefore, you can trade and purchase assets using the borrowed money from the broker. This also has a leverage factor which means that you will have increased profits and high losses.
This is all about some of the convenient ways on how to short crypto using legal actions. Further, purchase and sell stocks at your own risks and evaluate the risk prior to the contract deal. Make sure to read all the restrictions and conditions while trying to short crypto. It is quite beneficial in several cases only if you are aware of your commitments about the assets.