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Short selling ETH: How to avoid the risk and judge a good time to trade

2022-08-04

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The term shorting is not unfamiliar to most investors. Shorting is often the investment method that many investment veterans like to use, and this year, with the slump of Ethereum, many investors have made a lot of money by shorting Ethereum.

In today’s article, we will give investors a general idea of what to pay attention to when shorting Ether, understand the risks of shorting Ether and how to avoid it. Through professional analysis, you can find the best time to short the Ether market.

What is shorting ether?

Shorting ether refers to investors who believe that they will continue to decline for a period of time in the future, by selling ether that they do not hold (borrowing ether from institutions or traders), and buying them back at a lower price in the future to pay for the position , an investment method that earns the spread in the middle.

In the whole process, you do not need to own ETH, but the premise is that you need to open an account with the trading institution, and the trading institution will charge a certain amount of handling fee in the transaction.

An example to illustrate the opportunity to short ether:

If you think ether will fall in the next month, borrow 1 ether (assuming the current price is 1600USD) and sell it to investors. A week later, the ether market did drop to 1500USD, you decided to close the position and buy back 1 ether, earning a price difference of 100USD (1600-1500=100) in the middle. Note that this does not include transaction fees and borrowing ether. Interest.

Risks and Opportunities of Shorting Ether

Short selling ether is a matter of both risks and opportunities. Since the price of ether fluctuates frequently on a daily basis, there are many opportunities for short selling. But investors must be aware of the risks of shorting ether to avoid getting into trouble.

Risks of shorting ether

Risk 1: This strategy comes with potentially unlimited losses. Risk 2: When trading with this strategy, you must have a margin account. Risk 3: Short selling will generate margin interest.

Because Ether shorting is a kind of leverage, with high risk/high reward, so when there is a loss, more funds will be lost. For example, continuing the above situation, you think that ether will fall in the next month and borrow 1 ether (assuming the current price is 1600USD) to sell to investors.

A week later, you decide to continue to wait for the profit margin, but at this time, the ether rose sharply to 1700USD. If you decide to stop the loss and close the position, you will have to pay for the loss of 100USD (1600-1700=100) at this time. The interest and handling fee of the currency, the risk of margin loss. Especially when the market fluctuates, the price of ETH often rises by hundreds of dollars in a few minutes, and there will be a risk of loss.

Advantages of shorting ether

The advantage of short-selling Ether is that you can make considerable profits when the future trend of Ether is falling. When the virtual currency market is full of sorrows, falling endlessly, and almost falling back to historical lows, it is you who use the CM Trade platform Good time to be short.

In general, shorting is based on margin, so before shorting, you must know your risk tolerance level. Is the margin your own discretionary wealth? If so, you can make a big bet, open an account to invest in Ether, and start shorting.

How to short ether

At present, there are three mainstream ways of shorting in the market, namely, shorting through brokerages, shorting options and shorting CFDs.

Shorting ETH through a brokerage

Shorting through brokerages is usually used for stock products, but some brokerages also provide services for shorting ether.

Options Short Ether

Options are divided into call options and put options, so it is also a way to short the underlying.

Short Ether on CFDs

A contract for difference (CFD) is a contract between a buyer and a seller that states that the buyer must pay the seller the difference between the present value of an asset and its value at the time of the contract. CFDs give traders and investors the opportunity to profit from price movements without owning the underlying asset.

How to Short Ether on CM Trade

Since the CM Trade platform is a CFD provider for 5*24h trading, all time zones around the world can be traded. Therefore, after opening an account, you have the flexibility to trade in markets in different time zones, and pay attention to the US dollar as the trading unit.

You can short Ether on the mobile platform through the CM Trade APP or the powerful "one-click transaction" of CM Trade MT4.

To short Ether on CM Trade, there are three operations in total:

1. Register as a CM Trade user and open an account. It only takes a few minutes to open an account on CM Trade. Investors can even download the CM Trade software and conduct transactions directly on their smartphones.

2. Looking for investment opportunities, CM Trade will push timely market reports every day to help investors find the investment information they want to know.

3. Start trading, when you are ready to trade, investors can directly click the sell button to short ether.

In addition, you need to know the formula for shorting ether:

Total profit and loss = (selling price – buying price) x contract unit x trading lot ± overnight interest

Note: There is no need to pay overnight interest for closing the position on the day of opening; the actual overnight interest is mainly based on actual transactions; no commission is charged for placing an order through the CM Trade platform, opening an account on the trading platform, borrowing ETH for financing, and shorting ETH in the form of liabilities .

First of all, pay attention to the relevant regulations of financing, pay attention to how long the financing period is, once the market volatility of Ethereum is not as good as predicted, and you cannot invest in the income you want, how to survive by breaking the tail and set up your own stop loss point, so far for important.

Secondly, you should have your own psychological bottom line for the general market trend of investment income, and you should also set up a stop profit point. Once the market situation reaches your expectations, for example, if you have reached the target and assumed a 50% return, you should immediately take profits without hesitation.

When is a good time to short ether

The end of the Ukrainian-Russian war is still far away, countries are raising interest rates to fight inflation, the world supply chain is in chaos, the market has a strong wait-and-see attitude, and the decline of the virtual currency market has no end.

Or it is still rising, but you smell the news of future shorts, and shorting is used as a hedge against future declines, but it is only necessary to put a long-term perspective, and the relative interest rate will also increase.

With CM Trade, you can never miss any investment opportunity. The market quotes on CM Trade are synchronized with MT4, which is stable, safe, transparent and reliable. If you are smart, you can browse the market at the same time in each time zone and follow your own investment guidelines.

For example, set up your own stop loss point and stop profit point, among which the stop loss point is more important than the stop profit point, because the investment market is changing rapidly, and the short-term profit market will attract a wave of profit-taking psychology. If you don’t cherish the moment time, you will miss the moment of profit.

Summarize

Shorting Ether helps you profit. As long as the deposit and overnight interest are paid, no commission is charged for placing an order through the CM Trade platform, and the order can be placed quickly and conveniently on the mobile phone. The delivery time of T+0, and 5*24h trading, so you don't have to wait. use of funds.

In the rapidly changing virtual currency market, taking advantage of the moment when Ether is still falling, shorting Ether is really the best choice for your investment.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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