Bear markets suck.
During times of extended falling prices, many traders feel their only option is to sit on the sidelines until markets finally hit bottom. But it doesn’t have to be this way. Short selling is a trading method to profit when prices are falling. In current times, this can be an important tool to utilize.
Today’s article explores the world of how to short-sell on Bybit. With over 10 million users and some of the most diverse trading instruments and optionalities in the industry, Bybit is one of the best exchanges to execute crypto short sells. Specifically, we will discuss:
- What is Short Selling and Why Do It
- What are the Risks
- How to Short on Bybit in Eight Easy Steps
- Available Short Sell Instruments on Bybit
There’s plenty to discuss. Let’s roll.
Are you looking for all the details on this exchange? Read our Ultimate Bybit Review here.
What is Short Selling and Why Do It
Short selling is a trading strategy that allows a trader to profit when an asset’s price is falling in value. Specifically, a trader performs a profitable short sell by selling a borrowed asset at a higher price, and then repurchasing it at a later time for a lower price.
Short selling gets its name because the trader never owns the asset that they initially sell. The trader is “short” the asset because they borrow it via a loan from a lender. A successful short sell means the trader is able to pay the lender back with the asset that was originally loaned out, because it was repurchased at a lower price. The short seller’s profit is the price difference between the original sales price and the repurchase price.
Let’s look at an example:
- Bitcoin is trading at $20,000. Alice believes that bitcoin will likely fall in price over the next few days.
- Alice borrows 1 bitcoin from a lender, and immediately sells it on the open market for $20,000.
- Over the next few days, bitcoin’s price falls to $15,000. Alice repurchases 1 bitcoin for that price.
- She returns the 1 bitcoin to the lender, and pockets $5,000 as her profit (minus lender interest payments and trading fees).
Short selling provides an avenue for traders to make money in a falling market. So long as a trader can correctly predict the direction of a market, they can make money regardless if prices are going up (longing) or down (shorting).
Must read if you want to short sell on Bybit: everything you need to know about memecoins on Bybit!
What are the Risks
Shorting is risky because the trader is taking out a loan which must be paid back. Thus, if the asset goes up in price (“goes the wrong way”), and the short sell is closed, the price difference between the original sales price and the higher repurchase price would be the amount lost on the trade. And because any asset theoretically has no price ceiling, short sellers can lose all their posted collateral via liquidation.
Liquidation occurs when the collateral can no longer cover any further price increases. When trades are going the wrong way, many traders will add additional collateral to cover their positions in an attempt to avoid liquidation. The hope is that the price will eventually fall and the trade will eventually become profitable. But remember, because this is a loan, the lender is charging interest,…
David learned about bitcoin in 2015 and has closely followed the crypto industry since then. His professional interests center around bitcoin, layer-one blockchain protocols, decentralized finance, and clean energy. An attorney by trade, David has held licenses to practice law in the State of Hawaii and in US federal courts.
