What is Shorting in Cryptocurrency and What Exchanges Are Best For It

There are many ways to short the cryptocurrency market. You can short the coins themselves, for example, or you can bet on a decrease in the entire market cap of cryptocurrencies. It's important to understand that the cryptocurrency market is very young and unregulated, and because of this, it's full of fraud and manipulation.

Be sure to do your research before getting involved with any cryptocurrency investment, and if you are going to short the market, only bet what you can afford to lose.

What is Crypto Shorting?

Crypto shorting is the act of selling an asset that you don't own, anticipating that its value will drop. This can be done with cryptocurrencies like Bitcoin and Ethereum, but with different rules and regulations in other countries.

Furthermore, crypto shorting is an investment strategy where the investor makes money when the price of a cryptocurrency goes down. Sometimes called shorting, it's the opposite of buying and holding. In this article, I'm going to explain what a short position is, how to open one on Kraken, and why you might want to take a short.

It helps investors hedge against losses or even profit from market downturns. To understand it better, let's go back to basics with some basic finance terminology-like stocks, bonds, interest rates and derivatives.

What You Need To Know Before You Short Crypto

Before you short a cryptocurrency, you need to know the fundamentals of that particular coin. The same applies if you're buying or trading it. If there aren't any fundamentals, then how can someone trade with confidence?

1. You need to have money in bitcoin already for shorting
2. Shorting does not always mean you're betting against a currency
3. Shorting works well in bear markets
4. If you're going to short, make sure you're using a legit exchange
5. Crypto can be very risky - The market is volatile enough that you could make or lose a lot of money very quickly—don't put yourself in that position unless you're willing to accept those risks.
6. The cryptocurrency you short is typically put into a fund that invests in another cryptocurrency.
7. When you short cryptocurrency, the money is not coming from your bank account. The money is coming from your broker's bank account.
8. If the value of cryptocurrencies goes up while your trade is open and someone buys your contract for more than it's worth, then it will force liquidation, and all of your investment will be lost. 

Advantages of Shorting Crypto

Shorting crypto is a great way to make money if you believe the market is going down, or if you just want to hedge against that possibility. 

You can also short crypto on any exchange, but there are some exchanges where users have reported difficulties in placing shorts and may not offer this service at all.

Shorting crypto can be a great learning experience for the beginner investor. By shorting, you will learn how to manage a paper trade, which includes looking at things like graphs, altcoins, and pricing. 

You will also learn how to manage your own risk by limiting your position size and keeping tabs on the market while you wait for a buy signal. 

Shorting crypto can be used to maximize profits in other ways too. For example, if you have an altcoin that has doubled in value since you bought it at $10, and you want to sell it for $15 with no risk of going lower than $10, then selling it short would be a great way to do this.

Risks of Shorting Crypto

Shorting crypto is a risky endeavor. You're betting against the market, which means that you need to be sure that the price of your chosen asset will go down. If it doesn't, then you could lose money.

The bear market can make shorting crypto even more difficult because many traders are looking for long-term hold investments and aren't interested in selling off their positions at any price-even if they think they're overvalued. This makes it harder for sellers to find willing buyers who want to buy into their positions at lower prices than what's being offered by other traders selling short.

Another risk comes from price manipulation: some exchanges allow traders to manipulate prices by placing large orders with no intention of executing them (called spoofing). This can force other investors onto margin trading platforms where they may not have enough capital available. 

Best Exchanges For Shorting Crypto

Now that you know what shorting is, let's take a look at some of the best exchanges that allow you to do it.

KuCoin

The first exchange to consider when looking to short a cryptocurrency is KuCoin itself. It has a growing reputation and they are known for having low fees. They also offer their own coin: KuCoin Shares (KCS). This can be bought on their platform in various increments and allows investors to benefit from the success of KuCoin. KCS Tokens can be used to pay trading fees at a discount or can be staked in order to earn even more KCS Tokens.

This exchange has been gaining popularity lately because of its ease of use, mobile app, and relatively low fees. It also happens to support shorting with one click so it earns the number one spot on this list.

Kraken

Kraken, an exchange for cryptocurrencies, has the best options for shorting crypto. Kraken is a popular cryptocurrency exchange that allows users to buy, sell, and trade digital currencies. Its trading volume of over $687 million a day makes it one of the biggest crypto exchanges. 

The main features that draw investors towards Kraken include its high liquidity, low fees, and advanced order types like stop-loss orders. The exchange also offers free deposit for users from countries like Japan and South Korea. Another advantage offered by Kraken is its superior security measures which have helped it avoid hacks and other security breaches so far.

ByBit

ByBit is a Hong Kong-based cryptocurrency exchange that offers many crypto pairs, including BTC/USDT, ETH USDT, XRP/USDT, EOS/USDT and LTC/USDT. The exchange also supports margin trading and short selling of both cryptocurrencies and stablecoins (Tether).

Bybit is the best place for crypto shorting because it offers a high level of security and a wide array of altcoins to short. The interface is also quite user-friendly, which means you can get started in no time.

Binance

Binance is a crypto-to-crypto exchange. It's one of the most popular exchanges in existence, and it offers a low fee of 0.1%. The mobile app also has good reviews, so you can trade on Binance from anywhere at any time without having to sit at your computer.

Binance has a large number of coins available to trade, including the hiseals coin, with over 200 listed on its site at the time this article was written. It also offers many different trading pairs (BTC/ETH vs ETH/USDT vs USDT/XRP etc.).

eToro

eToro is a social trading and multi-asset brokerage platform. The exchange allows you to short crypto, but only on a limited number of coins.

eToro is one of the best places to short cryptocurrency because they provide leverage up to 1:2 (1:1 for Bitcoin) and have an excellent user interface that makes it easy for beginners to trade cryptocurrencies.

Conclusion

Shorting crypto is a great way to make money and even protect your investment. It's also important to remember that it can be risky, so make sure you know what you're doing before you start shorting crypto.