Investing in cryptocurrencies through short selling

Almost all cryptocurrencies available on the market have undergone a sharp drop in prices in the last year and a half. The problem is that the bearish trend can probably continue further for some time, and this factor may lead to considering investing in cryptocurrencies as a risky and pointless endeavor.

At least for the less accustomed and for those who are just entering the market. So, let's take a look at how to invest in cryptocurrencies, taking advantage of falling prices of the currencies themselves and thus selling short positions.

How it works

It is known that the cryptocurrency market – is not a market that lives exclusively on the upswing, and it has always been confirmed volatile, also due to low confidence. To work effectively in such conditions, you also need tools that can be used not only on the uptrend but also on the downtrend.

The spot is best abandoned

Seeking to profit from the fall of cryptocurrencies through spot trading – is not a good idea. Exchanges often require quite high commissions and only allow the purchase of the underlying asset. However, without the ability to short sell, it is impossible to profit from bearish trends in the cryptocurrency market.

CFD

CFDs are well suited for trading cryptocurrencies, even if they are in a state of absolute decline. CFDs, an acronym for contracts for difference, are special contracts that involve the purchase of derivative securities rather than cryptocurrency.

Short sales

Short selling – is the sale of an asset that the seller does not currently own. Since you do not own the cryptocurrency, when you want to sell it, the cryptocurrency broker will lend you the selected virtual currency at the appropriate price for the time being. Once the desired position is closed, the broker will buy the specified amount of cryptocurrency at the price fixed at the time the position was opened. If the cryptocurrency is worth less at the time of closing the transaction than when you opened it, you will earn and keep the difference.

However, it should be taken into account that in the opposite situation the trader will face high risks, so the method should be used with caution.