What is shorting?
Shorting is a method of making money in a down-trending market. A trader would borrow shares from someone who already has them, then immediately sell the shares at market price and buy them back when the price is lower. Once the shares have been bought back, the are returned to the owner and the trader keeps the profit (minus some fees).
Shorting Bitcoin and Litecoin
Currently the only site I am aware of that allows short selling is bitfinex. You will need to sign up to bitfinex and make sure to choose the “trader” account type on the signup page. Once you are logged in, the next thing you need to do is deposit some money.
Go to https://bitfinex.com/account/deposit and deposit money using whichever method you choose.
Exchanging to USD
If you deposited bitcoin or litecoin into your account, you will probably want a balance in USD for short selling, so you will need to exchange your coins to USD. Go to the Wallet Manager and see which wallet your bitcoin or litecoin is in. If it is not in the wallet called “Exchange” you must move it there.
Once you have moved the coins into the “Exchange” wallet, you will need to go to the Exchange Page. Here you can sell your coins with either a limit or market order, just like on normal exchanges.
Transferring to your margin wallet
In order to margin trade (short selling, leveraged trading, etc), you must use the wallet called “Trading”. To add USD to the trading wallet, simply go to the Wallet Manager and move money from another wallet into the trading one.
Once you have put some money into your margin wallet, you are ready to short sell.
In order to short sell you must be on the “Margin Trade” tab which will look very similar to the the exchanging tab. You simply fill the order size box and either choose limit or market order, then click “Margin Sell”.
The system will automatically borrow the needed coins for you and sell them on the market. When you open your short position, your stats will be displayed above in the “My Active Positions” box.
I’ll quickly explain what everything means.
Pair – The current trading pair for that position.
Amount – The amount of bitcoin or litecoin you have (the minus symbol signifies it is a short position)
Liquidation Price – The price at which your position will be automatically closed to prevent you going into negative balance (I’ll explain this later on in the article).
P/L () ($) – The estimated profit or loss in dollars (including fees) that you would make if you closed the position now (green for profit red for loss). P/L () (%) – The same as above except in terms of percentage instead of dollars.
Swap – No idea, but it’s irrelevant.
Action – By clicking close, you exit the short position by buying back the coins with a MARKET ORDER, this means that you may get less or more than the P/L states (nearly always less), it is risky and should only be used for panic closing your position.
Closing Your Position
Once the value has dropped enough and you’re ready to buy back the coins, you can close your position 1 of 2 ways.
The first method is by clicking “close” in the actions field of your active position. WARNING this closes your position with a market order which means you may make less or more than you expected (usually a lot less), I recommend only using this to close your position in a panic.
The proper way is to place a limit “margin buy” order for the same amount of coins as you shorted, then wait / pray for it to get filled (you can cancel / move at any time).
Warnings and Extra Information
The “Margin Trade” page is also used for leveraged trading, this means you can trade more coins than you actually own by borrowing coins / USD. This will multiply your gains and losses. To prevent accidentally buying / selling too many coins, you can go to Account Settings.
At the bottom of the page you will see “Leverage Options” by setting 1:1 this means you can only trade with money you have and you cannot accidentally apply leverage.
The margin wallet (trading wallet) can only be used for margin trades and not normal exchanging, you also can’t transfer money out of your margin wallet while you have an open position.
The required margin is how much money you must have to maintain your position. Because with short positions you are using borrowed coins, if the price keeps rising you would eventually go into debt. To prevent this, you have a margin requirement. If your margin requirement is 10% and your margin balance (trading wallet) contains $100, once your short position reaches a loss of $90 or more, the position will automatically be closed to protect you and the lender. Once the position is auto closed you will have $10 left (your 10% margin requirement). This system will prevent you from going into debt.
The liquidation price is the price at which your position will automatically be closed. This shows you how high the price of the coin can go before your losses cover enough of your margin balance that you no longer meet the margin requirements.
You should only use the margin buy feature to close a short position or for leveraged trading (not covered in this article). If you use Margin Buy to buy coin, the USD to buy the coins is borrowed (even if your balance is big enough to afford the coins). This makes it more expensive than normal exchange and you cant transfer the coins without claiming them first.
Crypto Margin Balance
You can have your margin balance in bitcoin or litecoin. If you’re trading tired or just really stupid and try to short btc/ltc with your margin balance in ltc/btc: as btc/ltc price drops you make profit but your margin become worth less so they cancel each other out. This can lead to extreme confusion and having your position automatically closed.
USD – The amount of USD in you margin account.
BTC/LTC – The amount of BTC/LTC in your margin account (trading wallet).
Margin Balance – The total amount of USD in your margin account, including all BTC/LTC at the current market price.
Tradable Balance – this is the total amount you can trade with, if leverage is set to 1:1 this is the same as your margin balance. With leverage enabled you can trade with more money than you have to multiply losses / gains.
Unrealized P/L – The total amount of profit or loss from all your open position.
Unrealized Swap – No idea, not relevant.
Net Value – The total value of your margin account (Margin balance plus/minus Unrealized P/L).
Required Margin – The amount of USD in your margin balance required to keep open your current open position(s). If your losses are big enough that your margin balance goes less than this value, your positions will automatically be closed.
Leverage – The leverage ratio enabled for your account (1:1 means no leverage).
Margin Requirement – The percentage of your balance that must remain for the position to stay open. If your losses cut into your margin requirement, the position is automatically closed.