How to Short Crypto: Beginner’s Guide
Bearish? Learn how to short Bitcoin, Dogecoin, Ethereum, and other cryptocurrencies on a variety of popular crypto exchanges like Binance and Kraken.
Can you short crypto?
Yes, you can short crypto using specific trades like margin or futures trades, just like you can short stocks and other more traditional investments.
What does shorting crypto mean?
Shorting comes from the term ‘going short’ and it’s a long-standing investment strategy that’s existed in traditional finance for some time, in fact, it’s famously how Michael Burry profited from the subprime mortgage crisis in 2007.
The most basic trading strategy is to buy low and sell high. You can almost think of shorting as the opposite of this - you’re betting on the price dropping and profiting from it, and you’re generally using leverage or a specific kind of trading contract to amplify those profits. It’s easier to understand with an example.
SHORTING CRYPTO EXAMPLE
You borrow one Bitcoin and short-sell it for $20,000.
Later on, the price of Bitcoin drops to $18,000. You expected this.
You now repurchase BTC for $18,000, not $20,000, and return your borrowed BTC. You’ve made $2,000 by pocketing the difference even though the price of Bitcoin fell.
How to short crypto
There are many different trades that effectively allow you to short crypto, including:
How to short crypto with margin trading
Margin trading is one of the most common ways to short crypto and you can do it using a variety of popular crypto exchanges that offer margin trading like Binance, Kraken, and KuCoin.
We have a complete guide on margin trading and how it works, but in brief, you effectively use a small amount of money, or given cryptocurrency, to borrow more funds from a third party, which would be a crypto exchange in this instance. This then allows you to take out a larger position and potentially increase your profits if your prediction is correct.
You can take a short or long position when margin trading, and in this example, to short using margin trading, you'd take a short position on a given cryptocurrency with leverage to potentially increase your profits if the price of said cryptocurrency falls.
How to short crypto with futures
Like other markets - crypto also has a futures market.
Futures are a kind of contract or agreement that you'll buy or sell a given asset - in this instance crypto - by a specific date for a specific price. So if you wanted to open a short position using crypto futures, you could lock in a price and sell when the price drops.
How to short crypto with options
Options trades are kind of similar to futures trades in that you're trading a kind of contract that allows you to buy or sell a given cryptocurrency at a specific price. There are two kinds of options:
Call options: buy an asset at a given price.
Put options: sell an asset at a given price.
So with options, you can predict the price of a given cryptocurrency will fall by a certain point. Some traders prefer options to futures because if they bet in the wrong price direction, they can opt to not sell put options and limit losses to only the price paid for the put position.
How to short crypto with predictions markets
The crypto market also has a growing predictions market - a specific kind of betting market where contracts are traded that bet on the outcome of events, similar to gambling.
Shorting crypto with prediction markets is pretty straightforward to understand - you can predict that a given cryptocurrency will decline in price by a given amount, and make a profit if it does.
Predictions markets in crypto are more common in the DeFi space and are still in their infancy, but some popular options include Polymarket and Augur. You'll need a non-custodial wallet to access both.
How to short crypto with CFDs
CFD stands for contract for difference, and as the name suggests, is a specific type of contract that pays out the difference between an open and close price as a settlement.
So to short crypto with a CFD, you could purchase a CFD predicting a fall in price between the open and closing price.
Compared to futures and options, CFDs often have more favorable settlements as the date may be flexible depending on your CFD.
Crypto CFDs aren’t as common as some of the other ways to short crypto we’ve mentioned, with eToro being the most notable large exchange offering CFDs.
How to short crypto with leveraged tokens
Finally, you can short crypto with leveraged tokens. Leveraged tokens are similar to margin trades as they allow you to utilize leverage to increase your gains or losses - but it's all managed with cryptocurrency tokens and there's no hassle around maintaining a margin.
We have a whole guide on leveraged tokens, but shorting with a leveraged token is pretty simple, you'd just purchase a short token - for example ETHBEAR, a 3x short ETH leveraged token.
How to short crypto on Binance
You have a few options for shorting crypto on Binance depending on where you live, including:
Thanks to an intuitive interface, it’s pretty easy to execute any trade to short crypto on Binance. You’ll obviously first need an account, and it’ll need to be verified before you’ll be able to make trades on Binance.
Once you’re set-up, just go to the top navigation menu and find the trade you want to conduct. You’ll find margin trading under trade, and futures, options, and leveraged tokens under derivatives. Just find the trade you’d like to conduct and follow the prompts on the screen to execute it.
It’s important to note Binance US does not offer many of these products for American investors.
How to short crypto on Kraken
To short crypto on Kraken, you can margin trade crypto.
Once you have an account set-up and verified on Kraken with funds in your account, just go to new order, select advanced, and then set the terms of your short position including leverage, cryptocurrency, amount, and order type (including limit and stop orders).
Kraken also has a dedicated futures trading platform, if you'd like to short using futures instead, however, the platform is quite restricted in terms of locations. Investors in the US, Canada, Australia, and the UK cannot use Kraken Futures at this time.
How to short crypto on KuCoin
KuCoin offers a few different options to short crypto including:
Unlike the other two exchanges, KuCoin does not require mandatory KYC in order to trade, so as soon as you have a funded account, you can head to trade to find margin trading or derivatives to find futures trading and leveraged tokens.
Once you've selected what you want to trade, just follow the prompts on the screen to execute your transaction.
Now let’s take a look at how to short some popular cryptocurrencies.
How to short Bitcoin
Like we've said above there are plenty of ways to short Bitcoin, but for ease, we'll stick to the most popular and simplest way, with Bitcoin margin trading.
Where to short Bitcoin
First up, you need an exchange. The following exchanges offer Bitcoin margin trading (as well as other methods to short Bitcoin):
The precise steps on how to short will depend on the platform you use, but generally speaking, it’s something like this:
Go to the trading dashboard for your chosen platform
Search for the trading pair and asset you ultimately want to short sell - i.e. BTC/USD, BTC/USDT, BTC/EUR, or so on.
Select margin, short, and select the amount of leverage, for example, X3. On some platforms, you may also need to separately fund a margin trading account before you can access leverage.
Confirm the transaction.
When you're ready to close your position you’ll need to buy BTC back, then head to the repayment or settlement page to close your position. You’ll also need to closely monitor your margin levels to ensure you maintain enough collateral to avoid your position being liquidated.
How to short Ethereum
Again, there are many options for shorting Ethereum, but the most common is generally by amplifying profits using Ethereum margin trading.
Where to short Ethereum
Firstly, you’ll need to pick a crypto exchange. The following exchanges offer Ethereum margin trading, and other methods to short Ethereum:
The precise steps on how to short will depend on the platform you use, but generally speaking, it’s similar to this:
Go to the trading dashboard and select the margin option. Depending on the platform you’re using, you may also need to fund a margin account separately from your main account.
Select short (or sell) and select the amount of leverage, for example, X5.
Confirm the transaction. You’ll need to closely monitor your margin levels from this point out to avoid liquidation.
When you're ready to close your position you’ll need to buy ETH back, then head to the repayment or settlement page.
How to short Dogecoin
You can even short memecoins like Dogecoin on some crypto exchanges. The methods for shorting Dogecoin are a little less varied and margin trading remains the most popular way to short with leverage.
Where to short Dogecoin
There are a number of popular and reputable crypto exchanges where you can short DOGE:
The precise steps on how to short will depend on the platform you use, but broadly speaking, it’ll go something like this:
Head to your trading dashboard and select the margin for the market. Depending on the platform you chose, you may also need to fund a margin account separately from your main account and potentially do further KYC.
Next, select short (or sell) and select the amount of leverage, for example, X10.
Now confirm the transaction. From this point, you’ll need to closely monitor your margin levels.
When you're ready to close your position, you’ll need to buy DOGE back and later head to the repayment or settlement page to repay your borrowed funds.
Why short crypto?
In theory, shorting crypto can be done without leverage or other trading contracts, it’s just that your profits won’t be as high. So the most obvious reason to short crypto is the potential for high rewards. However, as always, with big rewards comes big risks. You should always DYOR, make sure you understand the potential for losses, and invest only what you can afford to lose.
What are the risks of shorting crypto?
Any time you’re dealing with leverage or a contract that bets on a future outcome, the most obvious risk is that you bet wrong and instead of the price going down, it goes up and you’re out of pocket. As well as this, with leverage, just like you multiply your profits, you’ll equally multiply your losses.
Where can I short crypto?
You can short crypto on many popular crypto exchanges including Binance, Kraken, and KuCoin. Not sure which? Check out our best crypto margin trading platforms guide.