How to short Bitcoin

How to short Bitcoin on Binance? Or Short Bitcoin on Bybit

Are you seeking out answers on how to short Bitcoin on Binance or ByBit? 

We go into great detail about what shorting Bitcoin really is, short interest and short squeeze and how to short step-by-step.

Also, we analyze what types of contracts are available to you right now at Binance and ByBit, which are two of the top Bitcoin trading sites.

No Financial Advice, Information only. Do your own research. 

Cryptocurrencies are high-risk investments.

We earn an affiliate commission for marketing these sites

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 margin trading, futures trading, perpetuals contracts, and leveraged tokens.

What is Shorting Bitcoin or any crypto asset?

In theory, shorting Bitcoin means that you borrow Bitcoin from someone else to sell in the market.

Why would you do that?

Because you believe you can buy them back later at a lower price and hand the Bitcoin back to the lender.

In other terms, you are speculating in a decreasing Bitcoin price and you want to take 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 can in theory be any currency like ETH or EUR (if the market exist). 

Lets take a shorting example.

1. Bob wants to short Bitcoin on Binance when the price is $10.000 BTC

2. Alice do lend Bob 1 Bitcoin and Bob sell that Bitcoin to the market for $10.000 USD.

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 decrease 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 would have increased in price to $11000 Bob would have lost $1000 if he would close the trade at this price. However, if the Bitcoin would have continued to increase he would finally been forced to liquidate his position. This is what we refer to as a short squeeze.

Read more about short selling an asset on Investopedia.

How to short Bitcoin on Binance by Sunny Decree on Youtube

Can I Earn Good Profits from Shorting Bitcoin?

Yes, of course. Otherwise the trading opportunity wouldn’t exist. However, the risks are different between longing and shorting an asset, especially Bitcoin since its considered as 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 in 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 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 different opportunities to short Bitcoin and other crypto asset. Those include

  1. Margin Trading (Under Header Menu: Trade – Margin)
  2. Futures Trading (Under Header Menu: Derivatives – Coin/USDT Futures)
  3. Binance Leveraged Tokens  (Under Header Menu: Derivatives – Leveraged Tokens)´
Below you can see a print screen from Binance regarding the different shorting options and how to reach them in the header menu. There are two different print screens in the same image below.

Binance margin trading offers you to choose between 3 different options; Spot, Cross Margin and Isolated Margin.

In cross margin mode, the entire margin balance is shared across open positions to avoid liquidation. If cross margin is enabled, the trader risks losing their entire margin balance along with any open positions in the event of a liquidation.

In contrast to cross margin, isolated margin is the margin balance allocated to an individual position. Isolated margin mode allows traders to manage their risk on their individual positions by restricting the amount of margin allocated to each one.

Futures trading offers you to choose between 2 different options; USDT or COIN dominated. USDT can be traded with up 125x leverage and there is no expiration date. COIN dominated futures can be traded with up to 125x leverage and they are 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 normal leveraged trading is that you could get into a leveraged position without the need of having any collaterals, 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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How to short on Binance without leverage?

It´s not possible to short on Binance without using any of the leveraged trading products described above.

However, the leveraged tokens are very closed to this because there is no liquidation risk here.

Binance fees for shorting Bitcoin

Yes, Binance charge fees for shorting Bitcoin on their platform. The short-selling fee 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 different crypto trading exchanges. While Kraken and Coinbase have choose to be 100% compliant and US regulated from the beginning, Binance and Kucoin have focused more on delivering products somewhere between Defi and CeFi.

However, Binance is approaching the regulated arena more and more. 

Read more about the Binance crypto trading exchange and it’s legitimacy and regulations in our Binance trading review.

How to Short Bitcoin on ByBit?

Apart from Binance, you can also short Bitcoin on ByBit as well. The platform is crypto-to-crypto trade only but has many advantages of its own. Here are steps you should take to start shorting Bitcoin on ByBit.

Step 1: Register an account on ByBit. It is quite easy and lasts about 5 minutes. It requires an email address and password. Be sure to implement 2FA with Google authentication.

Step 2Analyze the different shorting options on ByBit. In the screenshot from the ByBit trading screen you can see what trading instruments are available for trading on ByBit.

  • Inverse Perpetual
  • USDT Perpetual
  • Inverse Futures

ByBit offers two different derivative contracts, futures and perpetuals

future contract is a derivative trading product. Its and agreement to buy or sell the cryptocurrency at a predetermined price at a specified time int the future. 

perpetual contract (Perpetual swaps) is a derivative product that is similar to a future contract. However, there are a few differences you must be aware of

1. Perpetual contracts are open ended (There is no expiry as it is with Futures)

2. Perpetual contracts mimic a margin-based spot market and is therefor traded close to the underlying reference. (Futures may trade at a significantly different price)

Step 3: Create a Short Order. Once you have decided if you are going to short Bitcoin with perpetual or futures, you can open up an order. At ByBit, the order input field is located on the right-hand side, as indicated on the screenshot below.

Here, you can make many different selections.

  1. Isolated or Cross margin
  2. Leverage level
  3. Market order, limit order or conditional order
  4. Order price and quantity
  5. Take profit or Stop Loss (TP/SL)
Read more about these fields in our Bybit guide and review.

Up to $600 in Sign up Bonus

What is a Bitcoin Short Squeeze?

Bitcoin short squeeze is a situation in which BTC price starts to go up drastically. It is a time 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 stop-loss function, indicating the price level at which you will incur an acceptable loss.

What are the Risks with Shorting Bitcoin?

As a conclusion, we do need to stress that risks with shorting Bitcoin 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 high leverage rate means liquidation price rate would be too close to the price you have begun with

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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 generated from shorting Bitcoin?

No worries, we have some guides to help you outon 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 to automate your crypto tax report with a software.

Lastly, you need to chose 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. In this article we describe how to earn interest with Binance locked staking.

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