Margin Trading Strategy: Go Short (Selling)
What is Going Short?
If the market is going through a prolonged bear market, prices are continually declining, what can we do to continually profit from trading?
Shorting in the bear market allows traders to profit off price declines. Opening a short position can also be an excellent way to manage risk and hedge existing holdings against price risk.
Shorting (or selling) means selling an asset at a relatively higher price in the hopes of buying it back later at a lower price. When traders predict some assets’ prices will decrease, they will choose to enter a short position, meaning that they are “bearish” on that asset. So, the short (selling) strategy makes traders trade to increase assets and profit off an asset’s price decline instead of just passively holding and waiting for the uptrend. Therefore, going short is a good way to against the bear market.
When to Go Short?
Short (selling) strategy is suitable for a prolonged bear market and a short-term or middle-term down market as well.
For long-term holders, the short strategy also is a good way to manage risk and hedge existing holdings against price risk.
How to Go Short?
Shorting is commonly done with borrowed funds, which means that you can borrow assets from the margin C2C market to trade instead of using your own assets. This is why shorting is closely related to margin trading and other derivatives products.
If you are bearish on some tokens in the crypto market, you just need to put up collateral in your margin account, borrow a specific amount of the token, and immediately sell the tokens at a relatively high price. At this time, you have opened a short position. In the following time, if the market is falling as you predicted, you can buy back the same amount that you’ve borrowed + interest at a lower price and repay the liabilities (tokens you borrowed + interest). Your profit = (the Initial Sold Price - the Rebought Price)*the Transaction Amount.
Steps: Sell High, Buy Low
Take BTC/USDT in Isolated Margin as an example:
BTC’s price is currently $30,000 and will be predicted to decline to $28,000 in the following days. It’s time to go short on BTC.
1. Transfer collateral to BTC/USDT Isolate Margin account. Only BTC or USDT;
2. Borrow BTC;
3. Open a short position. Sell BTC at a high price after borrowing;
4. Close the short position. Buy BTC back at a lower price;
5. Repay BTC liabilities and interest and take your profit.
*Short operations in Cross Margin are the same as in Isolated Margin. In the Cross Margin account, all tokens supported in the Cross Margin can be used as collateral to borrow other tokens.
Advantages
1. Make full use of holding assets to continually profit in the bear market.
2. It allows you to trade the tokens you don’t hold. For example, you hold USDT and no ETH. At this time, you can transfer USDT to your Margin account and borrow ETH or USDT, then trade ETH.
3. PNL feature is available in Isolated Margin.
4. Liquidation Price Reference is available in Isolated Margin
Risks
1. The higher the leverage, the closer the liquidation price is. Margin trading is risky. Hence, we strongly recommend users to trade in Margin at low leverage multiples (e.g.,2x, 3x).
2. Liquidation. When your debt ratio reaches 97% in Margin, your positions will be liquidated. Hence, when trading on margin, it's recommended to set clear risk management rules and set take-profit and stop-loss carefully. Beware of excessive greed.
