An independent examiner has revealed shocking details surrounding the inner workings of Celsius – a crypto lender that filed for bankruptcy in July 2022. The examiner claimed that Celsius did not operate by the business model that it presented to customers. He likened it to a Ponzi scheme, much like FTX – a company that happened to have used the same accounting software: QuickBooks. The Truth About CEL Token Per a filing from examiner Shoba Pillay on Tuesday, Celsius had…
What Does “Going Short” Mean In Crypto Trading
“Going short” in crypto trading refers to selling a cryptocurrency you do not own with the expectation that its price will decrease. This allows traders to profit from a decrease in the price of an asset rather than only being able to profit from a price increase, as is the case with “going long.”
To go short on a cryptocurrency, a trader borrows the asset from another trader or exchange and then sells it on the open market. The trader hopes that the asset price will decrease and that they will buy it at a lower price. If the price does decrease, the trader buys back the borrowed asset at the lower price, returns it to the lender, and keeps the difference as profit.
However, if the price of the asset increases, the trader will have to buy it back at a higher price than they sold it for, resulting in a loss. Therefore, going short carries the risk of unlimited losses, whereas potential gains are capped by going long.
Additionally, when the crypto is borrowed, there is interest for it (typically called “margin trading” or “leverage trading” ) which needs to be paid on top of the usual price fluctuation. With the high volatility of crypto, these interests can also be quite high.
How to Use the “Going Short” Method
Traders use “going short” methods when they believe that the price of a particular cryptocurrency is likely to decrease shortly. This might be due to a variety of factors, such as:
- Technical analysis of chart patterns can indicate that the asset’s price is likely to drop.
- Economic and market conditions include a bear market trend or a general trend of declining prices across the entire crypto market.
- Negative news or events related to the specific cryptocurrency or the crypto market can lead to a decrease in demand and, therefore, a price decrease.
Shorting is a more advanced trading strategy and requires a higher level of risk tolerance.
To use “going short” methods, traders typically use derivatives like futures contracts, option contracts, and leveraged trading platforms offered by crypto exchanges. These financial instruments allow traders to profit from the price movements of an asset without actually owning it.
A futures contract is an agreement to buy or sell an asset at a specific price at a specific time. For example, a trader can enter into a short futures contract, which obligates them to sell the underlying asset at a specified price in the future, regardless of the current market price.
An option contract gives the holder the right, but not the obligation, to buy or sell an asset at a specific price on or before a specific date. For example, traders can use put options, which give them the right to sell an asset at a specific price, to short a cryptocurrency.
The exchange allows users to borrow funds from the exchange to trade on margin in a leveraged trading platform. You only need to put up a small percentage of the total position as collateral, called the margin. Traders can use these borrowed funds to open short positions, effectively allowing them to trade more money than they have in their accounts.
When shorting, it’s important for traders to closely monitor the market and news developments, to minimize the risk of losing too much money if the market moves against them.