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How to short crypto

How to short crypto


Crypto is volatile, and sometimes you know a coin is going to go down – but you don’t have any to sell. Shorting is a way to profit when the market falls.

Disclaimer: crypto is volatile, leverage is dangerous, this is not financial advice, hmmkay?

Buy crypto. Wait for price to rise. Sell crypto. Profit. Simple, right?

But what if crypto is going down? What if you didn’t buy low but still want to sell high? That’s what short selling is for.

When shorting, what’s essentially happening is you’re borrowing coins from someone, selling them, then buying them back lower. Then you return the original coins and pocket the difference. Simple, right?

Of course, if the market goes the other way, you’re going to end up paying more than you sold the coins for. If you borrow a lot, the bill can be high.

That’s why you’ll put down collateral, and if the price moves too hard against you, you’ll be ‘liquidated’ – your position will be closed before your losses exceed the money you have to pay for it. With that in mind, here’s how to short sell. We’ll be using Poloniex as our exchange, though the process is similar elsewhere.

Getting started

You’ll need funds in your account, and you’ll need to transfer some BTC or other crypto to your Margin balance for collateral. Then click on the Margin Trading tab and get started.

Polo offers 250% margin, which means that for every 1 BTC you deposit to your Margin account, you can sell up to 2.5 BTC of the crypto you think is going to fall in value. Be warned: the more of your margin balance you use up, the less the market has to move to liquidate you. It’s worth keeping some in reserve to prevent that. Good risk management is vital if you’re going to be successful.

Pick your crypto from the list of coins including in margin trading. We’ll look at CLAM since it’s been on a bit of a tear recently and we like the odds of it dropping. On the right-hand trading tab, go to Sell CLAM. You can pick a limit price, just like a normal limit order, so if the price rises that high your order automatically opens. Then you select the amount you want to sell, which you’ll note is up to 2.5 times the funding in your margin account. Don’t worry too much about the loan rate – this is the daily rate for borrowing that coin, which will slightly increase your costs and will be included in your open position.

Click Margin Sell, and your position is open – you’ll see it appear on the page below the chart. You can close some or all of it quickly at any time by clicking Close on the right-hand side of the bar.

Alternatively, if you want to wait for the market to fall to a pre-set level before you close out your position, simply open a margin buy order at the price you want to close it, for the same amount. All being well, the two will cancel out when the price drops that far.

There are more ways you can limit your risk, including using a Stop order, but that’s for another time. Meanwhile, happy trading and stay safe!

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