Short position – what is it in cryptocurrency trading?

The first exchanges were opened over a hundred years ago, yet the methods of trading and principles have changed little. Almost every trading strategy involves one of two methods of executing a trade. In this article, we will provide a detailed description of short selling, also known as a short position.

Short Position

A short position is taken by a trader when they predict a decrease in the market value of the traded asset. In general, short selling involves margin trading with a cryptocurrency loan from the exchange. The player first sells borrowed tokens, and when the coin's price drops, the trader buys a larger quantity of coins for the same amount of money.

As long as the investor has not purchased the asset at a reduced price, they are considered to be in a short position. It is worth noting that cryptocurrency short selling differs from the classical concept. Therefore, one can enter a short position using a special derivative, such as BTCDOWN/USDT. BTCDOWN is not a coin, as it is often thought, but a derivative for shorting Bitcoin. It allows trading with leverage and potential additional profit.

Examples of Trades and Potential Risks

In the hope of a decrease in the price of Bitcoin, you borrow 0.1 BTC from the exchange. You put the asset up for sale. After the price of the cryptocurrency drops, you purchase a larger quantity, for example, 0.15 BTC. You then settle the debt with the exchange, which consists of the principal amount borrowed and interest for using the borrowed funds.

Trading on the downside carries higher risks, so it is not recommended for beginners to trade with borrowed funds.

Main Rules

A trader must have a verified account for the exchange to provide cryptocurrency on loan. Additionally, participating in margin trading without the necessary skills is not recommended.

The potential earnings are relatively limited compared to a long position. This method is suitable for professionals who are adept at shorting. They are often referred to as bears.