If you’re looking to short Bitcoin and other cryptocurrencies, we have the complete guide for you. Read on to know what shorting is. If you’re already familiar with shorting, scroll lower to see places where you can short Bitcoin in the UK and how to short.
What is Shorting?
Explaining shorting in a simple way, it is betting against the market. In a normal trade, you buy an asset and hope that the price goes up. If you’re buying 0.1 Bitcoin at $50,000 and it goes up to $60,000, you made a profit of $1,000. With shorting, it is the opposite. If you short 1 BTC at $50,000 and then take profit when it is at $40,000, you make a profit of $10,000.
While the above explanation was very simple, there is a slightly complex mechanism behind it. When you’re shorting Bitcoin, you’re actually borrowing Bitcoin from people who are willing to lend it for an interest rate. Then, you sell it immediately for the current price with the hope that it would go down. And when it goes down, you buy back the Bitcoin for a cheaper price and repay the loan. The remaining balance is your profit.
Unlike regular trading, the risk is larger with shorting. Let us consider the same example. You short 1 BTC at $50,000. Instead of the price going down if the price goes up 100% to $100,000, you lose your complete $50,000. You have no choice but to bring in additional collateral and risk more money or lose all your money to repay the loan. With regular trading, you can wait as long as you want, sometimes even for years for the price to recover. You don’t have that luxury with shorting.
Where can you Short Bitcoin in the UK?
Multiple exchanges offer shorting in the UK now. Here are some of the ones you can choose from:
- Binance
- CEX
- eToro
- Bitfinex
- Kraken
How to short Bitcoin?
For this guide, we are going to use the example of Binance. The first step is to deposit some bitcoin in Binance. If you already have some Bitcoin, head on to step 2.
Step 1: Buy Bitcoin
You may wish to trade Bitcoin for AXS on another exchange. This is also a great option if you’re looking to buy other cryptocurrencies, as having Bitcoin makes trading on exchanges easy. In this guide, we will use Binance exchange. Note that you can achieve the same result in an easier manner by depositing GBP to Binance, in accordance with Option 2.
This guide assumes you already have Bitcoin. If you don’t, you can buy Bitcoin at any of the following options:
- Binance (recommended; buy with £GBP or €EUR)
- CEX.io (recommended; buy with £GBP)
- Sign up for an account and buy BTC straight away with your debit or credit card, or bank transfer.
- Local Bitcoins (buy with £GBP)
- Buy BTC from other Brits using bank transfer.
- Coinbase (buy with EUR)
or, click here for a detailed guide on buying BTC in the UK
Waiting for a bank transfer or verification? Get a head-start by signing up for your Binance account while you wait…
Step 2: Shorting Bitcoin
- Register for a Binance account here
- Deposit Bitcoin to your account (your Binance Bitcoin wallet) by heading to Funds -> Deposits in the top menu
A. Select BTC from the drop-down menu, and copy your BTC Deposit Address
B. Send your Bitcoin to this address.
i.e. if you purchased BTC from CEX.IO, use their ‘withdraw’ page to send BTC to your Binance BTC wallet. - Once you’ve received your Bitcoin, head on to your wallet at the top-right. It should be under the “Funding” wallet. Click on transfer and transfer it to “Cross Margin” wallet. In Binance, you can short Bitcoin and other cryptocurrencies with Margin. (Shorting itself is incredibly risky. You can choose to use margin which is even riskier. Please understand the risks involved with leverage before you use it.)
- Click on trade on the top and go to margin.
- On the top-right search bar, search for BTC/USDT.
- For shorting, you have to Sell BTC here. Select the amount of BTC you want to short, and hit sell. (You can choose to borrow if you want leverage.)
- Finally, when you want to close the order, hit “buy BTC.” (If you executed a leveraged trade, make sure you repay the Bitcoin you borrowed. Otherwise you would end up paying interest unnecessarily.)
Conclusion
Shorting is not for everyone. It is to be used only if you’re extremely confident because of the risks involved. Shorting is a handy way to make profits in the short term. However, if you’re a long-term investor, our recommendation is to buy and HODL.