Apart from buying and selling cryptocurrencies on the spot market, you can also make money from margin trading, options, and the futures markets and utilize blockchain’s opportunities in your best interest.

For the most part, these types of cryptocurrency trading are based on price speculation. However, it’s not an easy task to determine the future price of cryptocurrencies due to their volatility. Still, if you have a reason to believe that the price of a cryptocurrency will fall or rise, you can try placing short and long positions to bet on it.

Shorting is a great way to generate profit in a downturned market. You can short Bitcoin (BTC), Ethereum (ETH), and other coins on Binance’s desktop app, mobile app, or online page, as well as most of the other cryptocurrency exchanges today. Here, we prepared a crypto trading guide for you to understand and implement short selling on the Binance trading platform.

Man holding phone in front of computer monitor with crypto trends on both screens on table

Beginner’s Guide to Short Selling

Short selling and long selling are terms used to describe different positions one can take on the derivatives trading market. Derivatives trading involves a set of financial contracts whose price depends on the underlying asset class.

Shorting or short selling is a trading strategy where you bet on the price fall of an asset. The idea is to trade borrowed funds or make a contract to trade funds in the future for a lower price. If the price falls per your prediction, you’ll end up scoring a profit.

In what follows, we’ll explain the different ways of shorting cryptocurrency using the trading features available on Binance as an example.

Margin Trading

In margin trading, you trade assets that you don’t actually own. Instead, you borrow extra capital from a third party and, in turn, increase your potential gains. If you play your cards right, you can leverage your position and amplify your gains or – end up exacerbating losses. For this reason, margin trading is highly risky and might not be the best choice for absolute beginners. If you want to get into margin trading, however, you are strongly advised to make use of stop-loss tools such as stop-limit orders or take profit orders to manage your risk.

On the stock market, the third party that provides the funds is generally an investment broker, while on the cryptocurrency market, the funds are provided by the crypto exchange itself or by the traders on the exchange who lend their funds and earn interest rates.

When you initiate a margin trade, you need to pay a percentage of your order’s value or a downpayment known as the margin. Since you don’t have to pay a downpayment for the total of your order, you can trade a greater sum of capital than you currently hold. For instance, you can order a $10,000 trade by committing $1,000 at a leverage ratio of 10:1.

One critical point of margin trading is that your margin account wallet assets work as collateral for the funds you borrowed when you opened a short position. In other words, you may have to sell your assets if the market price of the coin you had bet on increases against your short position. This is called a margin call. If that happens, you are required to deposit more funds into your margin account if you want to continue betting on your position. Your collateral assets will be automatically liquidated if you can’t deposit more funds.

How to Short Bitcoin on Binance Margin Trading

You need a margin account to start shorting on Binance through margin trading. You can open a margin account directly from your regular Binance trading profile. To do that, follow these steps:

  • After you log into your Binance account, hover your mouse over your profile icon on the top right corner of the screen. Select your email from the dropdown menu to go to your account dashboard.
  • Click on “Margin” below “Balance Details”. To open a margin account on Binance, you need to complete a mandatory identity verification (KYC) and enable two-factor authentication.
  • Once you activate your margin account, you can transfer your funds to your Margin Trading Wallet from your regular Binance Wallet under the Wallet tab. When you do so, you will be able to use them as collateral to borrow funds.
  • Your margin account will be credited with the funds you borrow, and you will be able to trade them. Keep in mind that there is also an interest rate that updates every 1 hour. You can check the available pairs and their interest rates on the Binance margin fee page.
  • Finally, go to the Exchange page, select the Margin tab, and start margin trading.

If you want to stop margin trading, you can repay your debt by clicking on the “Borrow/Repay” button and selecting “Repay”. You can move your funds back to your regular Binance Wallet by clicking on “Transfer”. Make sure you click on the button in between your wallets to change the direction of the transfer and to confirm it.

Futures Trading

The futures market lets you buy cryptocurrency via a futures contract, an agreement between the buyer and seller to trade a crypto asset at a pre-established date and price. By getting a futures contract, you don’t actually buy the cryptocurrency but the right to buy it in the future.

Like margin trading, futures contracts also give you the power of leverage. Since you don’t have to pay for the total amount that the contract specifies upfront, you can bet more than you currently own and not compromise the reward. Moreover, futures contracts are time-resistant, meaning their value doesn’t depreciate over time as with options.

There are two types of futures contracts on Binance: USD-Margined Futures Contracts where you use stablecoins that are pegged to USD, such as Tether (USDT) or Binance USD (BUSD); and Coin-Margined Futures Contracts, where you can bet on other altcoins that Binance supports without holding a stablecoin as collateral.

How to Short Bitcoin on Binance Futures

Note that, first of all, you need to enable two-factor authentication to open a futures account. Next, to place short and long positions from your Futures account, you will need to have funds in your wallet and use them as collateral.

Once you deposit the right amount of funds in your futures wallet, you can select the type of futures contract you want to open and select the leverage amount. Finally, place the order on the Binance trading platform.

Options Trading

You can also short on Binance using the options market. By buying an options contract, you gain the right to buy or sell an asset for a predetermined price. Binance offers five trading pair markets for options: BTC-USDT, ETH-USDT, XRP-USDT, LINK-USDT, and BNB-USDT.

There are two options you can bet on: call and put. The call option gives you the right to buy a coin for a specific price, while the put option gives you the right to sell a coin for a particular price. If you want to go short, it means you believe that the price of the coin you want to invest in will go down. To do that, you should choose the put option to sell it for a higher price in the future.

On Binance, you get to do options in the American style. Contrary to European style options, American style options can be exercised any time before the expiry date.

Binance options also offer short-duration contracts. This way, you can trade options ranging from 10 minutes to 1 day, which gives you even more flexibility. Another advantage of options is that you can evaluate your losses beforehand and execute the contract when it’s most profitable, rather than having an obligation to execute it on a specific date.

On the other hand, there is no guarantee that the market will go the way you predicted. Even if it does, you might not end up with a profit after reducing the premium payment, i.e. the sum you pay for the futures at the end of the contract.

If you still want to give options a go, you need to determine the duration of the option you want to purchase and confirm details like strike price, premium, and expiry date. If you want to exercise the option before the expiry, you can settle the contract at any time. Otherwise, the option will be exercised automatically on the expiry date.

A Few Words Before You Go…

Derivative markets are essential instruments that Binance’s users long anticipate. Trading cryptocurrency on the spot is a great way to invest in cryptocurrency. But derivatives are even more sophisticated investment tools that allow you to speculate on future asset prices, utilize leverage options and trade in a larger market. These tools can help you win big on cryptocurrency trading.

However, shorting on cryptocurrency has its own risks that go in line with the highly volatile nature of the cryptocurrency market. Hopefully, after reading this article, you have a broader understanding of the shorting tools available on Binance and the reason why users want to invest in these positions. But before investing your valuable assets in derivatives, you are strongly advised to come up with a trading strategy.