How to make money by short selling in the currency circle

Cryptocurrency shorting is a trading strategy that profits from falling asset prices: borrow the asset and sell it at a higher price. When the price drops, buy it back at a lower price. Return the borrowed asset and collect the profit (sale price - buy back price - interest).

Short-selling profit mechanism in the currency circle

In the cryptocurrency market, short-selling is a trading strategy that allows traders to profit when the price of an asset falls.

How to Profit from Short Selling

Shorting is divided into the following steps:

1. Borrowing Assets: Traders borrow the asset they want to short (such as Bitcoin) from an exchange or other platform.
2. Sell borrowed assets: Traders sell borrowed assets to cash out the market price.
3. Asset price falls: If the asset price falls as the trader expects, the trader can buy back the borrowed asset at a lower price.
4. Return the borrowed assets: Traders use the purchased assets to return the borrowed assets and collect interest.
5. Profit: The difference between a trader selling a borrowed asset and buying it back at a lower price is their profit.

Example

Suppose a trader believes that the price of Bitcoin will fall.

1. Trader borrows 1 Bitcoin from the exchange.
2. Trader sells Bitcoin for $30,000, gets $30,000 in cash.
3. Bitcoin price drops to $25,000.
4. Trader buys back 1 Bitcoin for $25,000.
5. The trader returns the borrowed Bitcoin and pays interest.
6. The trader’s profit is $30,000 (selling price) - $25,000 (buying price) - interest.

Things to note

• Risks: Short selling carries the risk of losing money, if the asset price rises, the trader will need to buy back the borrowed asset at a higher price.
• Margin Requirements: Exchanges usually require traders to provide margin when shorting to reduce the risk of the platform.
• Interest Cost: Traders pay interest on borrowed assets, which affects their profit margins.
• Market Liquidity: Short selling relies on market liquidity to ensure traders can buy back borrowed assets at a reasonable price.

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