The first exchanges were opened more than a hundred years ago, but trading methods and principles have changed little. Almost every strategy uses one of two ways to make a deal. In this article, we will describe in detail shorting, which is also called a short position.

Short Position or Short Selling

A short position is opened by a trader when they predict a decrease in the market value of the traded asset. Generally, shorting involves margin trading with a cryptocurrency loan from the exchange. First, the trader sells the borrowed tokens, and when the coin price decreases, the trader acquires a larger number of coins for the same amount of money.

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

Examples of Trades and Potential Risks

Hoping for a decrease in Bitcoin's value, you borrow 0.1 BTC from the exchange. You put the asset up for sale. You then purchase a larger amount of cryptocurrency after its value drops, for example, 0.15 BTC. Afterwards, you repay the debt to the exchange, which consists of the principal and interest for using the borrowed funds.

Short selling carries higher risks, so beginners should not trade with borrowed funds.

Basic Rules

A trader must have a verified account for the exchange to provide cryptocurrency on loan. Moreover, it is not recommended to engage in margin trading without relevant skills.

Earnings are quite limited compared to a long position. This method is suitable for professionals who know how to profit from price decreases. They are often referred to as bears.