You may have earned profits when the prices of Ethereum are increasing but have you ever thought of making a profit when the prices are falling? You may not have, but it is not possible with the help of shorting. Yes, shorting or short-selling is one of the best options that will allow you to make a profit from falling prices.
If you want to learn about that, you are right. This article will teach you about shorting and how to short Ethereum. Keep reading to know more!
What do you mean by short-selling Ethereum?
Short or short-selling Ethereum means borrowing the assets from the brokers, selling them at the currency price, and then repurchasing them when the prices are low to return the coins to the broker. The profit you will make will equal the difference between the buying and selling prices. You can use Ethereum code for this purpose.
Regarding the modern trading platform, everything will be conducted in an automated fashion. An investor needs to analyze the market appropriately and check whether the crypto price will fall or rise shortly. If the market falls, you will short the market, and the broker will take care of the rest.
Ways to short Ethereum
You can short Ethereum in many ways when there is a fall in the prices. If you want to learn about the ways through which you can earn profits are mentioned in the following points-
Use margin on the exchange
One of the crucial ways to short Ethereum is to use the margin exchange facility from the exchange or a broker. It will allow you for the seamless transaction of the short trade behind the scenes, and that will be without you knowing from whom you are borrowing the coins and how you need to return them.
The platform will do everything automatically, and all you need to do is click on the ‘sell’ button and the ‘close’ button when you need to close your short trade. Using this method will also offer you benefits that will allow you to borrow more coins than the original size of your account.
By going long elsewhere
One more way you can benefit from ETH’s falling price is the inversely correlated market. The market is opposite the other one, which means if one demand rises, the other will fall and vice-versa.
Considering this will give you more indirect benefits from falling the price without shortening the coin.
There are several platforms where you can short ETH, which will offer you several benefits too. But while shorting, you need to be careful as you may see risks involved while shorting Ethereum.
Risks involve in short Ethereum
Nothing comes without risk in cryptocurrency, so when you are shorting Ethereum, you will also have to face some risks. Sometimes, these risks can be more than what you have deposited or the price volatility. No matter what the condition is, you need to be prepared and make a judgment according to that.
1. Price volatility
Cryptocurrencies are highly volatile, and ETH (Ethereum) has liquidity and a low level of volatility compared to the broader ecosystem. When there is high price volatility, that will help you in creating many profitability trading opportunities, but it can also lead to high losses for beginners.
2. Losing more than what you have deposited
The primary risk users have because of shorting Ethereum is that they can lose more money than they have initially deposited. It is true if you are overtrading, which means you are overleveraging your trades, and that is also in times when price volatility is high.
During the turbulence in the market, it is not uncommon to see the ETH price rise to hundreds of dollars in just a minute.
3. Unlimited demerits
Another risk an investor may face is shorting ETH (Ethereum), which is the short seller’s encounter with unlimited downsides. The problem is that when there is a short, you will make a profit only when prices fall.
But you may know that prices can only fall to $0 and not less than that; however, the amount can rise indefinitely.
4. Active management
Active management is necessary, even in open trades like any other trading. Traders must be up-to-date on the market fundamentals to prevent the significant losses that may happen while shorting ETH (Ethereum).
If you are looking for the best shorting opportunities, you can find when you are entering the market for the long-term and when the short-term market will make a lower high. It will even allow you to short at a price, which is best during a downtrend.