There are many ways to short crypto, and here we explain how to short on Bybit. Bybit is one of the top Bitcoin and altcoin derivative exchanges.
Short selling is an appreciated trading product by many traders since you can win in a bear market and hedge your positions in a bull market.
Still, risks are involved in shorting a market, especially volatile markets with a long-term large potential upside, like cryptocurrencies. At the same time, due to the volatile nature of cryptocurrencies, this kind of market should attract professional short sellers to find great opportunities when crypto is overbought.
No Financial Advice, Information only. Do your own research.
Cryptocurrencies are high-risk investments.
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Best Crypto Trading Platforms for Shorting Bitcoin
*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 Short Selling a Crypto?
Short selling crypto occurs when an investor borrows a cryptocurrency and sells it on the open market, planning to buy it back later for less money and give it back to the lender and at the same time make a profit.
One of the most famous short-selling stories is when Michael Burry shorted the American house market.
Long VS Short
Having a “long” cryptocurrency position in means that you own the cryptocurrency and probably believe it will increase in value over the long term.
The opposite of a “long” position is a “short” position. A “short” position is generally a sale of a cryptocurrency you don’t own since you believe in a bear market to make profit.
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 pretty 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 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
A futures contract is a derivative trading product. It’s an agreement to buy or sell the cryptocurrency at a predetermined price at a specified time.
A perpetual contract (Perpetual swaps) is a derivative product 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 are traded close to the underlying reference. (Futures may trade at a significantly different price)
Step 3: Create a Short Order. Once you decide if you 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 in the screenshot below.
Here, you can make many different selections.
- Isolated or Cross margin
- Leverage level
- Market order, limit order, or conditional order
- Order price and quantity
- Take profit or Stop Loss (TP/SL)
What is a crypto short squeeze?
A short crypto squeeze is triggered when a cryptocurrency increases in price at a rapid pace. This will trigger a lot of margin calls and in the worst case liquidations.
If liquidations occur, this will trigger a further price increase and even more short-selling liquidations.
This is also a way for large institutions to make market manipulations. If you have money under management and discover a large short position in a market you can go and buy stocks in the open market to increase the price and force a short squeeze.
One of the most famous short squeezes was when the Reddit Wallstreetbets community found that the Gamestop stock was shorted by large institutions. The community agreed to short squeeze these institutions by buying large amounts of the stock.
All-in-all, they were successful with regards to the short squeeze. However, many small traders lost large amounts of their capital when the stock was called back in price since no one could withhold the high Gamestop price.
What is a Margin Call in Shorting?
A short sale requires a margin because the practice involves selling a cryptocurrency that is borrowed and not owned.
A margin is a form of collateral that has to be in the short seller’s account as a security to make sure that the trader has funds enough to cover the borrowed cryptocurrencies sold in the market.
The initial margin is the amount of margin required at the time the trade is initiated.
The maintenance margin is the margin requirement during the life of the short sale.
If the value of the short position falls below maintenance margin requirements, the short seller will face a margin call and be asked to close the position or increase/deposit funds into the margin account.
How can a short position be liquidated?
Yes, definitely. A short position requires an initial margin and maintenance margin. If the maintenance margin is not met, there will be forced liquidation.
Short Selling Pros and Cons
- Traders can win in a bear market
- There are leveraged short selling products
- The downside is unlimited since a crypto increase in price indefinitely. Still, your position will be liquidated so it’s actually a limited downside in each trade.