Are you seeking out answers on how to short Bitcoin on Binance and BitMEX?
If you are a beginner that wishes to get into crypto trading, then this crypto trading guide is for you.
Binance offers a new leveraged trading product they call Binance leveraged tokens which is a very good option for e beginner, for example.
We go into great detail about what shorting Bitcoin really is, how to do it.
Also, we analyze what types of contracts are available to you right now at Binance and BitMEX, which are two of the top Bitcoin trading sites.
In addition, this guide explains what is Bitcoin short interest and short squeeze, as well as whether you can short futures.
What is Shorting Bitcoin?
Shorting Bitcoin simply means that you speculate in a decrease in the Bitcoin. 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).
In theory you borrow someone else´s Bitcoin when you short Bitcoin. After you have borrowed the Bitcoin you sell them at market price. Now you hope that the price of a Bitcoin will decrease so you can buy it back and give it back to the lender. Lets take an 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
- 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.
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.
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How to Short Bitcoin on BitMEX?
Apart from Binance, you can also short Bitcoin on BitMEX 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 BitMEX.
Step 1: Register an account on BitMEX. 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 2: Analyze the different shorting options on BitMEX. In the print screen from the BitMEX trading screen you can see what cryptocurrencies are available for trading on BitMEX. You find Bitcoin, Cardano, Bitcoin Cash, EOS token, Ethereum, Litecoin, Tron and Ripple. You can short any of those cryptocurrencies on BitMEX. However, you must know the difference between the available contracts on BitMEX before you start trading those contracts.
In the printscreen below the Ethereum contracts are marked. You can see Perpetual (50x), USD Sep 25 and XBT Sep 25.
Perpetuals are open ended contracts
USD SEP 25 is ETH/USD and ending on Sep 25
XBT is ETH/Bitcoin and is also ended Sep 25.
See the next print screen for for more information.
BitMEX offers two different derivative contracts, futures and perpetuals
A 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. Futures contracts do not require 100% collateral as margin, therefor its possible to trade futures with up to 100x leverage on BitMEX. All margin on BitMEX is denominated in Bitcoin.
A 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)
In the screenshot below you can see both the available future contracts for Bitcoin on BitMEX and the available Bitocin perpetual contract. Also, you see there is a price difference.
Sep 25 (100x)
Dec 25 (100x)
Step 3: Create a Short Order. Once you have nailed down the time you want to start shorting Bitcoin, you can open up an order. At BitMEX, it is located on the left-hand side, as indicated on the snapshot below.
You start by putting the number of bitcoins you wish to short and at what value (yellow circle). Quantity the volume you wish to trade with. Green square will show you the fee structure. Costs vary from -0.05% (reimbursements) to 0.25%, depending on market conditions. Take these into account when calculating your planned profits and the price level you wish to close the contract.
Lastly, you simply click the “Sell / Short” button and voila! Your order is live.
Step 3a (Optional): Use Leverage. If you wish to earn more from Bitcoin shorting, you can use leverage rates, indicated with a red square. Please note that BitMEX allows 100x rate as maximum amount for leverage. The maximum level is quite powerful and as such, sets liquidation price quite close to your starting value.
It means that should BTC price go up instead of down in value and surpass the liquidation threshold, your order would close and wipe out your balance. Starting with a 10x or smaller rate would be the best for beginners.
Step 4: Watch until BTC Price reaches the desired value. This step is perhaps the most agonizing one, as you sit and wait until price reaches the level you have set. We recommend putting a stop function that would close the order automatically.
You can put stop-order either to limit losses or to close the order once BTC value reached desired level. It would close the order for you, so you can be free from constantly looking at charts.
Step 5: Final step – Close the Order and Analyze. Once the ROE is at the acceptable level, it is time to close the order and earn profits. You do so by clicking the “Close Order” button that would be located in the space indicated by a yellow square in snapshot below.
We highly recommend analyzing the period within which your order was live. It will help you understand what drives the market and at what times should you open a new short order.
Step 6: Rinse and Repeat.
What is Bitcoin Short Interest?
As you go by crypto trading, few terms like Bitcoin short interest are important to understand. Short interest is the number of short orders released to the market. It helps you determine how many people are shorting Bitcoin. If a lot of traders do it, there is a good chance that BCT price will go down fairly soon.
In the case of Binance, you can check them out on the left side of the trade window, indicated by the green square.
BitMEX also provides data on the latest short trades. You can check them out in the snapshot below, indicated by the red font.
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
Your capital is always at risk when trading