Cryptocurrency trading has been supported by a number of brokers already but in 2017 you can see the explosion in the number of cryptocurrency offerings. There are several restrictions for cryptocurrency traders who are trading with brokers, they can usually take only a long position but there are also brokers that offer “short trading” with coins. Shorting a coin is basically betting against the coin, when you short a coin you are expecting for the price to go down instead of up. There are various different ways that traders can ‘go short’ and one of the most common ways is by using a cryptocurrency margin trading platform. Traders should keep in mind that margin trading can generate much larger losses than traditional trading. It’s not a good idea to hold a short position for long periods of time or to leave an open short position with no stop-loss order. Some other ways to short cryptocurrencies include:
- Traders can sell cryptocurrencies in the hope of buying them back later at a cheaper price (the easiest way)
- Options contracts – traders can place a bet that the value of some cryptocurrency will be lower than a particular value at a certain point in the future (for example 1 day, or 1 week). A fall in cryptocurrency value will earn a profit, which is exactly what shorting is all about
- Futures contracts – this contract is a very good way to short cryptocurrencies. This contract allows buying a cryptocurrency at a future date and a fixed price. The trader buying a futures contract thinks the price for example, per Bitcoin, will go up and he will be able to purchase Bitcoin below the market price when the contract “expires”.
- Binary options – traders can place a bet that the value of some cryptocurrency will be lower, usually measured in hours with the end of that day. Traders looking to short some cryptocurrency would execute a PUT order. If the price at the expiration time is lower than the original price, you earn the option’s payout. This is trading with a very high risk because you will lose everything if you are incorrect
Trading with a free demo account first
Some brokers also offer a demo account, a trading account that allows testing the features of a trading platform before funding the account or placing trades. Traders beginners should open a demo account, try to become profitable and continue to evaluate at regular intervals before funding the account or placing trades. Demo accounts can allow a trader to experiment with trading style, to learn a profitable system and get used to the broker’s execution methods. My recommendation for the new traders is once you are comfortable with a particular trading style, remain faithful to that trading style and always use “stop loss” and “take profit” orders. When choosing a broker, always check history and reviews to make sure their performance is consistent. Checking the reviews is something you should always do.