For those of you who aren’t familiar with the terminology, shorting is the process of selling your coins high, and then buying them back low. There’s a lot to account for but, if you can get it right, you can effectively gain free coins.
Let’s run a quick scenario. Say you have 100 Antshares, which are currently priced at $10 (Just an example, I’m trying to stick to whole numbers). You see that the price is beginning to decrease so you sell all of your ANS and are left with $1000. Over the course of the day, the value of Antshares dips to a low of $5.
You think this is the lowest it’s going to get, so you buy back into ANS with your $1000. Because the price has decreased so much, you are now able to buy 200 coins, instead of the 100 that you had. Now, when the currency begins to rise again, you’ve got double the ANS for very little effort.
This quick graph I made explains it perfectly:
Now, while I made it seem easy with the above example, there are a few things you need to keep in mind. Firstly, unless you’re holding a high number of coins, or the price changes drastically, this isn’t going to make you very much money. If you have 100 coins and the price decreases by $1, that’s $100. Nothing amazing, but you are doing literally no work. Secondly, you need to take exchange fees into consideration, as well as withdrawal fees.
Secondly, you need to take exchange fees into consideration, as well as withdrawal fees. If you like to withdraw your currencies in small chunks like me – for safety reasons – then the fees can really add up. Be sure to check your exchange’s trade fees as well as withdraw fees. Sometimes you can think you’re going to make $50 from a few minutes work, when you actually end up with less than when you started.
Great, it sounds easy! How do I know when to sell and when to buy back?
The short answer: You don’t. This method relies heavily on your ability to analyze trends on the market and understand how much your chosen currency has the potential to dip.
From what I’ve seen, when a few currencies begin to dip, they all begin to dip. If you pay attention to the 24hr change, on Coinmarketcap’s homepage, you’ll be able to spot when these dips are coming.
The most important thing is to not panic and buy-back at a loss. Throughout the day it’s inevitable that the price may come up but what goes up must come down. While you may think that your plan has failed and you’re going to be down a lot of coins, sticking to your guns and waiting it out is the best thing to do.
How do you know when to sell?
This one’s a little easier to understand – sell any time after you make a profit. Sure, you could wait it out a few more days and have made a bigger profit, but it’s all down to you. Once again, don’t get frightened if your profit dips for a little bit, it’s likely that it’ll increase again as time goes on.
Ethereum was a perfect example of how you can make some extra money on top of your investments. It went from $326 down to $253 and then back up to $315.
Hindsight is a wonderful thing. Don’t beat yourself up for selling/buying at a certain point when you could have waited longer and made a bit more money. Getting greedy is exactly how it can call come crashing down around you.
Hopefully, you’ve learnt a little more about the process of shorting crypto. Remember, be careful! While it’s very easy to make a lot of money, it’s also very easy to lose that money overnight.