Predicting a bear market? Earn money when prices fall with Short Selling from MyConstant
The volatility of crypto is both a gift and a curse. Time the market right and you could catch the upswing, pocketing a nice sum.
But what happens when prices fall? Will you be left holding the bag or stacking some tidy profits?
Today, I’m happy to announce that you can profit in both bull and bear markets with MyConstant Short Selling.
What is short selling?
Short selling is when you borrow an asset that you believe will fall in price, sell it immediately at market price, and then repay when the price falls, pocketing the difference.
It’s a common tactic used by experienced investors and hedge funds to counter market volatility and manage risk. That said, it’s also a speculative investment strategy for those daring enough to bet against the market.
While profits can be enormous, there’s no limit to losses, making it exclusively for those who know what they’re doing.
Used cautiously, however, short selling is a useful tool for hedging against unexpected market behavior. While diversification plays a similar role, it can’t defeat a market-wide slump. Short selling, on the other hand, might.
A short selling example
Imagine the market price of bitcoin is $50,000.
If you sense a reduction in the price of bitcoin, you could short it. You borrow 1 BTC and immediately sell it. You now have $50,000.
Let’s assume your prediction comes true and bitcoin falls 10% to $45,000.
Now, you can buy back your 1 BTC at $45,000, return it to the lender, and keep the $5,000 difference.
In this example, you just made $5,000 short selling BTC.
However, if your prediction is wrong, you could end up having to buy back 1 BTC at $55,000, $60,000, or even $100,000 (or more)!
Your losses would then be astronomical. As a result, short selling is for sophisticated investors only – those who know what they’re doing and only ever short what they can afford to lose.
How does MyConstant Short Selling work?
We’ve created the following pairs for you, accessible from your coin balance:
USD / BTC
USD / ETH
USD / BNB
You can top up each pair “pot” from your MyConstant USD balance, and from there, collateralize that USD to borrow the corresponding crypto in your pair balance.
While doing so, you must set a “take profit” and “stop loss” price for the crypto you’re going to short.
This ensures you take profit before prices change, but more importantly, prevents you from losing all the USD you used as collateral to open the short position.
You can have several short positions open under each pair, but your stop loss applies to all the positions in that pair. For example, if you short BTC at $50,000, $49,000, and $48,000 your stop loss will apply to the combined position, not the individual ones.
Once you’ve chosen a crypto, an amount to short, and set your take-profit and stop-loss prices, you can open your short position.
How much does shorting cost?
We sell your shorted crypto for you immediately and return the funds to your pair balance.
Until you repay, you’ll be charged 7% APR, calculated every few seconds, and a matching fee of 1% on the opening value of your short. Both of which you pay when you repay.
It’s then just a matter of time to see if your bet pays off.
If it does, you can repay your crypto in either its USD equivalent (from your available pair balance) or from your coin balance, whichever you prefer, and keep the profits.
You can also transfer USD in and out of your available pair balance whenever you like, and your USD collateral is released upon you repaying.
If your bet doesn’t pay off, well, you can repay before your stop loss kicks in or hope things change, knowing your stop loss is there to cushion the blow.
Like all credit products on our platform, you can top up your USD collateral if you want to wait a little longer for your prediction to come true. You can also partially repay.
A word of warning: don’t chase gains – if you’ve lost money, it’s better to accept those losses than to hope for a turnaround and lose even more.
How do I get started?
First, you need a MyConstant account (free) and to have verified your ID.
Next, you need to transfer USD from your MyConstant balance to your pair balance. If you don’t have any money in your MyConstant account, you’ll need to deposit some first.
Then, simply head to our Short Selling page and follow the on-screen instructions.
You can track, top up, transfer, and repay from the pair balance dashboard.
What is short selling?
Short selling is a high-risk trading strategy that involves borrowing an asset you believe will fall in price and then pocketing the difference when you repay.
For example, if you borrow an asset worth $1,000 and then sell it on the market, you have $1,000. If that asset falls to $900, you can then buy it again at the lower price, repay the lender, and keep the $100 difference.
However, if your prediction is wrong and the asset increases in price, you’ll have to pay more to repay the asset. This can result in some fast and significant losses if you’re not careful.
How does short selling work?
MyConstant can lend you crypto through three pairs:
USD / BTC
USD / ETH
USD / BNB
To short any of these cryptocurrencies, you must first top up your chosen pair’s balance.
If you already have USD, it’s as simple as transferring it from your available balance to your chosen pair balance. Otherwise, you’ll need to deposit first.
Next, you choose how much of your chosen crypto you want to short. Remember – your collateralized USD is at risk if the crypto increases in price, so only short what you can afford.
You then need to set a stop loss and take profit limit. These are lower and upper price limits of the crypto that can help you secure profits and minimize losses.
With these values set, you’re ready to hit the “Short Crypto Now” button.
It’s then a matter of waiting to see how the market behaves – will your bet pay off? We hope so!
You can wait until you hit your “take profit” limit or manually repay your crypto whenever you like, as either USD from your available pair balance or as crypto from your coin balance.
However, if the price of your shorted crypto rises, your collateral will be at risk. Once your collateral value falls to 110%, it’s sold and you lose it.
What is the “take profit” price?
Your take profit price is the price at which you repay your shorted cryptocurrency.
You set a price lower than the current market price and when the market hits that level, you repay your shorted cryptocurrency and keep the profits.
For example, let’s say you’re shorting bitcoin. It’s current price is $50,000. If you believe it will fall 10%, you’d set your take-profit price to $45,000.
When bitcoin’s price hits $45,000, you repay the borrowed cryptocurrency in its equivalent value in USD from your pair balance. You keep the profits minus the matching fee and interest rate.
What is the “stop loss” price?
Similar to the take-profit limit, the stop-loss limit is a price above market at which you automatically repay the shorted cryptocurrency.
Let’s say you’re shorting bitcoin and its current price is $50,000. If the price rises 10% to $55,000, your collateral is at risk because you now owe more than you borrowed.
If you want to minimize your losses and protect your USD collateral, you must set a stop loss. However, you don’t want to set it too low as prices often fall as quickly as they rise, and you don’t want your short knocked out because of standard market volatility.
While the stop loss is a specific cryptocurrency price, we show you the expected loss in USD if the price hits your stop loss value. Make sure you’re comfortable with this number.
Why can’t I set different take-profit and stop-loss prices on each new short?
Whenever you short a crypto for the first time, you can. But if it’s a new short of the same crypto, your take-profit and stop-loss prices apply to your entire pair. This is a risk management measure that helps minimize the potential for runaway losses.
Which cryptocurrencies can I short?
At the moment, you can short BTC, ETH, and BNB.
Are there any fees for short selling?
Yes, there’s the matching fee of 1% and you pay 7% APR on the USD equivalent of your shorted cryptocurrency until you repay.
Is short selling risky?
Yes, short selling is a high-risk yet high-reward trading strategy. On MyConstant, you’re a little safer than other platforms as you can only lose what USD you put down as collateral. As long as you don’t “chase gains” by regularly topping up this collateral when your shorted crypto increases in price, you are in a better position to control losses.
What are the benefits of short selling?
Short selling is a useful hedge when you’re unsure of where the market is going. While traditional investing expects prices to rise, short selling pays when prices fall. It’s therefore a useful strategy in times of uncertainty or bear markets. It’s also used as a speculative investment to bet against the market. Whenever you short sell, remember the risks and ensure you set a comfortable stop loss.
How can I minimize risk when short selling?
Only invest what you can afford to lose. Set an appropriate stop loss. Don’t chase gains by regularly topping up your USD collateral to avoid liquidation.
How often do you pull crypto prices?
Crypto prices are refreshed every few seconds. If the price changes significantly before you’ve completed your order, you’ll need to do it again to get the latest price. (You have a few minutes to open your short before this happens.)
How often is interest calculated?
Interest is calculated every few seconds. Should any significant change in the interest due happen while you’re in the process of repaying, you might be asked to refresh the page and try again.
What’s the maximum I can short?
The maximum you can short for all supported cryptocurrencies is the equivalent of $50,000. This is to avoid destabilizing the market, which in turn may lead to losses.
Can I transfer USD from one pair balance to another?
No, I’m afraid not. You can only transfer in and out of your pair balance and account balance, not between different pairs.
What’s the minimum to open a short position?
The minimum to open a short position is $50 worth of the shorted crypto.
Ready to short your first crypto with MyConstant? Head to the Short Selling page now.
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