What does it mean to short crypto?
What are all these weird people on crypto forums doing by constantly “opening” and “closing” some shorts? What do they do? And is it somehow connected to elegant shorts of Gesha Kozodoyev from “The Diamond Arm”?
Joking aside! Short is a purely market (not jargon, but quite official) term. “Short” (or “Short position”) is a margin trading of an asset. Accordingly, buying, which is the opposite of selling, is always a “long position” (or “Long”).
Interestingly, these concepts have nothing to do with “deal duration”: short positions can be opened for an infinite period (within the margin, of course), while a long position can be closed in just a few minutes. It is better to deal with this at once, to avoid confusing shorts with “short trades”: they can be either short or long.
According to the tactic of working “only in shorts” or “only in longs” two types of players can be distinguished: “bears” and “bulls”. The first ones short an asset and put downward pressure on it, while the second ones try to put upward pressure with their “longs”.
Several legends on the Internet explain why selling is called “short”. Some believe that the price always drops faster than it rises (which is why the trades on the downside are “short”). And someone comes up with beautiful historical examples with the ancient abacus in the form of sticks, from the short end of which special marks were made. We do not know precisely how it was in reality and assume that there can only be one truth. That’s why we suggest you spend your time not on philosophical parables but the practical side of the topic.
A specific feature of leveraged transactions is buying/selling an asset you do NOT own. If, for example, you want to sell “physical” cryptocurrencies on the spot market, it would not be a “short position”. So, what’s the difference? The difference is that a short is actually a “sell under obligation to buy later”. A simple sale of any crypto on an exchange, or an exchange service, technically doesn’t differ from a simple transaction to a friend or an online store.
In fact, a short is a “bet” between you and the exchange, the essence of which is that you are betting that the price of the selected cryptocurrency will go down. You earn the difference between the opening and closing price if you are right. If you are wrong, you will lose some of your margin that confirmed this bet.
For example, if you are a “bear” and expect bitcoin to fall from $20,000 to $18,000, you can open an account on the exchange, deposit it with the necessary margin, and open a “short”. If your bid turns out to be correct, at the $18,000 level, you “close the short”, which, by its nature, is a buying. Selling 1 bitcoin (which you didn’t have, but the exchange “borrowed” it to you) at $20,000 and repurchasing it at $18,000, you can give “borrowed” bitcoin to exchange and get the difference – because with $18,000, you can buy more BTC, than with $20,000.
To make such trades convenient and safe, exchange platforms offer user-friendly and practical terminals, where you can not only send an “order” to the broker to open or close a short with a couple of buttons but also use various graphical analysis tools, technical indicators, tips, news feeds, signal copying services, and other features that increase the probability of successful trades.
