How to short Bitcoin

How to short Bitcoin

Updated 2018-02-15

How to short Bitcoin

This article reviews available platforms that provide the short (sell) order position within their margin trading marketplace. The main question we ask in this guide is how do you short bitcoin?

The guide touches upon trading platforms that allow you to short bitcoin, using different margin trading functions. The reviewed websites are BitMex, Bitfinex, Markets.com, and eToro. Each of the platforms is investigated in terms of margin trading functions, fees, service availability and liquidity of the coins. The pros and cons are then constructed, in order to provide you with comparative analysis.

Shorting an Asset


Why would anyone want to short Bitcoin? What is actually meant by shorting an asset such as Bitcoin? How can I short Bitcoin? Let´s answer those questions for you.

The reason anyone would short Bitcoin is that the person believes that the price will decrease. To short an asset means that you borrow that asset, for example, Bitcoin and sett it at the current price. Later, you can purchase the asset to pay back the person or institution you initial borrowed them from when selling them at the first time. The reason anyone would do this is, of course, that they believe it´s possible to repurchase the asset at a lower price than at the first selling.

Let´s do an example

  1. You short 1 BTC at $4.500 (You borrow 10 BTC from anyone that actually owns 10 BTC and sell them)
  2. You will get $45.000
  3. Let´s say the price drops to $4.000
  4. You now choose the repurchase the Bitcoins for 10*$4.000=$40.000
  5. You profit will be $45.000-$40.000 = $5.000

Of course, you can lose money if the price rises and you can lose extremely much since there is no limit on the upside. If you buy Bitcoins, you always know that the maximum downside is 100%.

Where can I Short Bitcoin?


You can work with both exchanges and trading platforms when shorting the coin of your choice. These platforms differ in terms of costs, service availability and margin trading functions that you can use while shorting cryptocurrencies.

No matter where trader lives, large players offer services globally, with very few restricted regions.

BitMex


Based in Seychelles,  BitMEX platform is a strictly crypto-to-crypto platform that offers margin trading for its clients. You can short 11 cryptos, bitcoin and Ethereum included, with several functions available for you. Functions that you can use are FillorKill, GoodTillCancel, ImmediateOrCancel, and Reduce-Only, as seen below.

How to short Bitcoin BitMEX

The usable leverage can range up to 100x, meaning that you are borrowing 100 times more coins than what you have in balance. Service is available globally while fee structure is designed by maker/taker orders (from -0.025% to 0.25%).

You do not need to verify your identity in order to be able to short your crypto position.

PROS

- large leverage of up to 100x for BTC
- several functions available for use
- services available globally
- no verification needed for short positions

CONS

- apart from BTC, other coins have the leverage of maximum 33x
- no security features

 

Bitfinex


Bitfinex is the largest BTC to USD trade, offering a large liquidity rate for its clients. The exchange offers margin trading with short position included. You have limit, market, Stop, Stop-Limit, Trailing Stop, and Fill-or-Kill functions, much like in BitMex. The leverage function can be set on maximum 3.3x. You have over 40 coins readily available for a short position at any time.

How to short Bitcoin Bitfinex

Bitfinex offers several security functions, such as 2FA, email notifications, IP address whitelist, and communication encryption. Service is available globally though you would need to verify your account before you are able to deposit/withdraw funds from Bitfinex. Much like BitMex, Bitfinex also employs maker/taker cost structure, ranging from 0% to 0.2%.

PROS

- over 40 cryptocurrencies readily available for trading
- services available worldwide
- adequate security features

CONS

- verification is required from users
- no leveraging function
- leverage of only 3.3X

Markets.com


Markets.com is a trading platform that, unlike Bitfinex and BitMEx, offers a variety of assets for a trade. Cryptocurrencies are part of the program though you can only trade short positions with 7 cryptos at this very moment. Another major issue is that trading hours are set for each commodity meaning that marketplace does not work outside hours. The marketplace operates from Sunday 23:00 GMT - Friday 22:00 GMT.

How to short Bitcoin Markets

Service is available globally and you have few security features, such as SSL encryption and email alerts. There are no trading fees applicable for short orders while the leverage is not available for cryptos. Verification is a must, meaning that you should provide your scanned ID and proof of address.

PROS

- service available globally
- no trade fees applicable for short positions

CONS

- traders need to complete the verification process
- no leveraging for cryptos
- a small number of crypto coins available
- limited trade hours

eToro


If you are a starter that needs a little bit of a helping hand would much for your profit margin when shorting cryptos. Thus, eToro is one of the most popular choices when it comes to margin trading. The website is one of few platforms that offer crypto social trading. This means, among many other features, that traders can copy short orders from successful traders. Verification is needed while service is available globally.

How to short Bitcoin eToro

Trade itself offers 7 cryptocurrencies, with only several functions available, them being stop-loss and take-profit. Leverage is quite high for cryptocurrencies once the real account is set, leveling on 400x. There are no trade fees for short positions when cryptos are concerned.

Security is of the average value since you have two-factor authentication (2FA) and email alerts. You also have the ability to invest in short positions made by other investors, learning about the crypto trade in the process.

PROS

- service is available worldwide
- large leverage of 400x
- possibility to use successful traders’ orders
- the great learning environment for starters through CopyFund program

CONS

- a small number of trade functions available
- verification needs to be completed

Conclusion


In this review, we have answered the question on how to do you short bitcoin. We uncovered that short (or sell) orders are meant for users who are very familiar with margin trading. Only eToro really offers services for starters, helping them gain knowledge while trading at the crypto market.

We would recommend you to work with either eToro or BitMex if you are a starter. The BitMex offers non-verification environment while eToro gives tools to learn quickly about shorting bitcoin. Bitfinex is the best place for experts, with its deep liquidity and the large specter of functions available for you.