Best Crypto Trading Platforms for Shorting Bitcoin
Binance offers the most trading features, the lowest fees, and the highest trading volumes.
Bybit offers among the highest trading volumes for the derivative market, great trading features, and decent trading fees.
Kucoin offers many markets, limited trading volume for derivatives, and low trading fees.
Gate.io offer the most listed derivative markets, decent trading fees, and decent trading volumes.
*Shorting is possible through leverage trading instruments like margin trading, futures trading, perpetuals contracts, and leveraged tokens. Read more about the best crypto leverage trading platforms.
What is Shorting Bitcoin?
In theory, shorting Bitcoin means that you borrow Bitcoin from someone else to sell in the market.
So why would you do that?
Because you believe you can repurchase them later at a lower price and hand the Bitcoin back to the lender.
In other words, you are speculating on a decreasing Bitcoin price and want to profit from it. Shorting is the perfect opportunity for you.
As always, there must be a counter currency when you trade currencies. Usually, the counter currency is USD, but it can, in theory, be any currency like ETH or EUR (if the market exists).
Short-Selling Bitcoin Calculation
Let’s calculate on a short-selling Bitcointake example.
1. Bob wants to short Bitcoin on Binance when the price is $10.000 BTC
2. Alice does lend Bob 1 Bitcoin, and Bob sells that Bitcoin to the market for USD 10.000.
3. Now, Bob can face two different scenarios.
a. Either the price goes up for Bitcoin
b. Or the price goes down for Bitcoin
4. Luckily, the price decreased to $9.000, and Bob buys back the Bitcoin and gives it back to Alice. Bob did make a profit of $1000 in this trade.
If Bitcoin had increased in price to $11000, Bob would have lost $1000 if he would close the trade at this price. However, if the Bitcoin had continued to increase, he would finally be forced to liquidate his position. This is what we refer to as a short squeeze.
Read more about short selling an asset on Investopedia.
Can I Earn Good Profits from Shorting Bitcoin?
Yes, of course. Otherwise, the trading opportunity wouldn’t exist. However, the crypto trading risks are different between longing and shorting an asset, especially Bitcoin since it’s considered a volatile asset.
First you must understand that you lose money when an asset increase in price. Since there is no limit on how much an asset can increase in price that risks are generally higher for shorting than for longing since an asset cant decrease more in price than having a zero value.
Also, before you are shorting Bitcoin, or any other asset, you must understand that markets are(or can be) irrational. It means that a price can increase to the skies with no underlying reason more than a mega speculation or mega hype.
Remember that the markets can stay irrational much longer than you can stay solvent so always think twice before you short an asset.
Read more about shorting risks at the bottom of this article.
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How to Short Bitcoin on Binance?
Now we get to the juicy part – we will show you how to short Bitcoin on Binance and earn profits. Here are the steps you need to take to make it happen:
Step 1: Create an account on Binance. Easy enough and takes about 10 minutes total to do. Provide your email and password and put on two-factor authentication (2FA).
Step 2: Analyze the different shorting options on Binance. Binance offers several additional opportunities to short Bitcoin and other crypto assets. Those include
- Margin Trading (Under Header Menu: Trade – Margin)
- Futures Trading (Under Header Menu: Derivatives – Coin/USDT Futures)
- Binance Leveraged Tokens (Under Header Menu: Derivatives – Leveraged Tokens)´
Binance margin trading offers you to choose between 3 different options; Spot, Cross Margin, and Isolated Margin.
The entire margin balance is shared across open positions in cross-margin mode to avoid liquidation. If the cross margin is enabled, the trader risks losing their total margin balance and any open positions in the event of a liquidation.
In contrast, to cross margin, the isolated margin is the margin balance allocated to an individual position. The isolated margin mode allows traders to manage their risk in their respective positions by restricting the amount of margin given to each.
Futures trading offers you to choose between 2 different options; USDT or COIN dominated. USDT can be traded with up to 125x leverage, with no expiration date. COIN-dominated futures can be changed with up to 125x leverage, with or without an expiration date. Read about how to trade Binance futures.
Binance Leveraged tokens are tradable assets that give you leveraged exposure to the underlying asset. The big difference from regular leveraged trading is that you could get into a leveraged position without having any collateral, maintaining margin maintenance, and worrying about the liquidation risk.
Below you can see what cryptocurrencies are available for Binance leverage tokens, and they all can be traded with up to 3x leverage.
There are trading fees associated with Binance Leveraged Tokens.
1. Trading Fees for Binance leverage tokens: Identical to spot trading
2. Subscription/Redemption Fees for Binance leveraged tokens: 0.1% per subscription
4. Management Fees: A daily management fee of 0.01% will be charged at 00:00 UTC and taken from the leveraged token.
5. Funding Fees: Funding fees are paid for the borrowed funds to leverage the Binance Tokens. Binance takes no fees for funding rate transfers; these are directly between traders.
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A selection of Binance leveraged tokens.
How to short on Binance without leverage?
Yes, you can short on Binance without any leverage. You select the trading instrument and the trading pair you want to trade and go for 1x leverage.
Binance fees for shorting Bitcoin
Yes, Binance charges fees for shorting Bitcoin on their platform. The short-selling cost is dependent on which product you use for shorting and what leverage you use. Read more in this article, where Binance Trading Fees are explained.
Binance Crypto Trading Exchange - Is it Legit and Safe?
There are different approaches regarding regulations among the other crypto trading exchanges. For example, while Kraken and Coinbase have chosen to be 100% compliant and the US regulated from the beginning, Binance and Kucoin have focused more on delivering products between Defi and CeFi.
However, Binance is approaching the regulated arena more and more.
Read more about the Binance crypto trading exchange and its legitimacy and regulations in our Binance trading review.
What is a Bitcoin Short Squeeze?
Bitcoin short squeeze is a situation in which BTC price starts to go up drastically. It is when short orders incur losses and traders are trying to close their positions. In most cases, you will be forced to incur a loss since these jumps are rarely stable. To hedge Bitcoin positions against such price movements, always leave the stop-loss function, indicating the price level at which you will incur an acceptable loss.
What are the Risks with Shorting Bitcoin?
In conclusion, we must stress that shorting Bitcoin risks should not be ignored.
Crypto trading risk management is one of the top three things you need to master before you get a profitable crypto trader.
You are betting that BTC’s price will drop in the future. However, trends may not go as planned for various reasons. Here are risks you should look after while shorting Bitcoin:
- Bitcoin price growth forces losses on your account
- Sharp price spikes can trigger liquidation function
- If the price is stable, rollover fees can kill your profitability rate
- Using a high leverage rate means the liquidation price rate would be too close to the price you have begun with
Your capital is always at risk when trading
How to file a tax report for crypto earnings?
Not sure how to file a tax report for your crypto earnings from shorting Bitcoin?
No worries, we have some guides to help you with this issue.
First, you can read about how crypto earnings, income, trading, and gains are taxed.
Secondly, we have a 4 step guide to help you automate your crypto tax report with software.
Lastly, you must choose between the best crypto tax software on the market.
How to use Binance Earn with your idle assets?
When you don’t use your funds or cryptocurrencies for trading, you should put them to work for you by generating interest and passive income.
This is possible via the Binance feature, Binance Earn. This article describes how to earn interest with Binance locked staking.