Ethereum is a popular cryptocurrency in terms of adoption and market cap. This is due to the fact that Ethereum is making notable advancement in technology. These days, there are so many tokens based on the Ethereum network.
However, in this bearish crypto market, many have been wondering how to short Ethereum and other cryptocurrencies. We wrote this article to answer that question. However, before you learn how to short Ethereum, you need to understand what it means to short Ethereum.
What does Shorting a Cryptocurrency Mean?
You may not have a clear idea of this term, although you may have heard it. You short a cryptocurrency by selling it at a market high and buy it back at a later date, hopefully at a lower price. The difference in cost is the profit or loss you make. To simplify further, think of this example. You take your friend’s car and sell it to someone else with the agreement of buying it back at a future date. When that time has come to buy the car back, the price of the car has depreciated. So you buy the car at a lower price and return it back to your friend. The difference in the price of the car when you sold it and bought it back is the profit you make. This is what it means to short but now, think in terms of cryptocurrency.
Before you start shorting Ethereum, you need to have Ethereum on your account. Good news is that there are many crypto platforms in place that allows people to borrow directly without a broker. An example of one such CFD trading platform is DYDX. There are 2 key ways to short if you are planning on shorting Ethereum or any other cryptocurrency to make some profit.
1. Shorting Ethereum Using Margin on An Exchange
Short selling is the option for anyone who wants to make a profit from a bearish market. This is where you have the opportunity to sell ETH with the aim of buying it back at a lower price than the price you sold it. There are a number of cryptocurrency exchanges offering margin trading to make borrowing possible. Some exchanges allow you to borrow directly from their existing stock of cryptocurrency while others arrange peer to peer buying from other users.
These are the top exchanges that allow margin trading:
2. Short by Going Long Elsewhere
Ethereum has many trading pairs with other cryptocurrencies. Not just limited to Dollars and Euros but with other currencies around the world. For a trader who thinks Ethereum will depreciate in value in relation to Bitcoin, can buy Bitcoin and later, exchange it for Ethereum after it has depreciated in value. This is not exactly shorting but it can make you profit from a falling price.
These two ways can earn you a profit from a falling cryptocurrency. But, our focus is on how to short Ethereum. Now that you have a clear understanding of what shorting means and the techniques used to make money from a falling cryptocurrency, we will teach you how to short Ethereum. As stated earlier, to short Ethereum, you first need to have Ethereum on your account.
How to Get Ethereum
There are two primary ways of getting Ethereum. It is either buying or mining. The best way is to buy Etherium because mining is time-consuming and not as convenient. To buy Ethereum, you need to find an exchange like Binance or KuCoin which allows you to buy Ethereum with a credit/debit or a bank transfer. After you buy Ethereum, wait for them to process your card or bank transfer and wait for Ethereum to deliver to your account. You can store your Ethereum on their exchange or get your own wallet. Having a hardware wallet like Nano S is secure, compared to software or cloud-based wallets.
The other way to obtain Ethereum is through peer to peer trading. Here, you will pay for Ethereum upon agreement. It can be done online or in person.
The mining option, as a way of obtaining Ether tokens, entails the use of proof of work. This means miners contribute their computing power to solve a complex mathematical problem. This is done to seal off and verify a block of transactions in the network. The successful miners receive a reward for every block mined.
As you have chosen a platform for trading and now have Ethereum on your account, our focus is on how you can short Ethereum. A CFD platform like eToro is an example of such a platform where you can short Ethereum. We will show you how to short Ethereum on eToro.
How to Short Ethereum on eToro
In CFD trading platforms, there are leverage or margin trading services which you can make use of. If you want to trade more Ethereum than the amount you have, you can use the leverage option. When you finally close your position, you only have to return the exact amount you borrowed. The rest is profit. This is a very risky way to trade and if you are not careful, it can quickly drain your funds. But it can be very profitable if you know what you are doing.
Steps to Shorting Ethereum on eToro
Step 1: Take a moment to create an eToro account.
On eToro, you can see your portfolio and also has a news feed. This is a nice feature on eToro. You can follow up on what is happening on your favorite coin or stock, live.
2. Look out for Ethereum.
Click on the search bar and type the word “Ethereum” and results will display.
3. Click on trade.
There is a trade option on the right side of the screen. Click it and a menu will display. The menu got three columns with these options: equity, stops and leverage.
4. Choose the amount and set stop-loss.
This is where you get the opportunity to choose the amount of Ethereum you want to short and then proceed to set your stop loss. This stop-loss is important because it can minimize your loss.
5. Choose leverage.
Keep in mind that loss can exceed your deposits. You can choose your leverage now. Know that by trading with leverage, it increases the risk associated with your short.
6. Confirm trade.
The last step is to confirm the trade and the order will be completed in a few seconds.
Monitor it on your portfolio.
Having completed the shorting process, click on portfolio found on the left side of your screen. This is an important step as you are able to monitor the profit and loss you will be making. There is the option to close the trade when you see you have made enough profit or to minimize loss.
It is time to sit back and relax. Wait for Ethereum to fall in price and close the trade. By following these simple steps you are now able to short Ethereum successfully.