If you are new to longing and shorting crypto futures this guide will help you.
What is a short position?
In trading, a short is a short sale. The idea is to buy back a contract at a lower price.
When you short a cryptocurrency, the aim is for the price to fall to make a profit. Don’t think of shorts as an investment, but as a derivative dedicated to trading.
At the end of the day, it’s just speculation on the decline of an asset. By shorting an asset, you don’t own the cryptocurrency in question. This is an important difference from Spot trading, where you actually own the tokens purchased. Here, it’s all speculation.
The advantages of a Short position
Make a profit even in a bear market: thanks to sound fundamental and technical analysis, you can generate gains by shorting a market.
Possibility of using leverage… (avoid using leverage above 10x)
Opportunists can really take advantage of shorts to make money when their analysis concludes that a crypto project is running out of steam, that a price has experienced an unsustainable parabolic rise
Disadvantages of a short position
Costs are higher than for spot trading
Long-term market view and herds buying into projects are the enemy of short trading
Close liquidation and risk of losing your entire portfolio when you opt for cross mode
Futures markets in crypto are available on a large number of exchanges, Binance, Bybit, Bitget, Okex, phemex to name a few. However, verify that trading such products is allowed in your jurisdiction!
What is a long position?
Unlike shorts, a long position bets on the price of an asset rising. In the same way, you don’t actually own the cryptocurrency in question, it’s a derivative product where you’ll recoup gains on the rising price.
Leverage can also be used to increase your gains… (avoid using leverage above 10x)
If the price goes down, a liquidation alert will be sent to you.
Once again, this is speculation that can pay off handsomely in a bull market. A good technical and fundamental analysis is a prerequisite for futures trading.
The advantages of a long position
Make a profit in a rising market without actually buying a cryptocurrency
In general, for the established cryptocurrencies, the long-term view of the market favors the side of long trading
Possibility of using leverage up to 100x depending on the exchanges… (again we strongly urge you to not use leverage above 10x)
The disadvantages of a long position
Payment of funding rate, a fee that gets steeper the more and more traders are opening long positions. These fees are calculated and taken from your balance each 8 hours, the reason of funding fees is to pay the market participants taking the opposite trades, therefore when most are long the fees are so high that most will exit their Longs.
High funding rates more often than not happen with Longs rather that shorts.
Liquidation of your balance due to poor market analysis or late entry.
You need to think carefully and calculate your move before making a futures trade.
Most centralized exchanges offer futures contracts. They are not always accessible, however, and although they are regulated in France with PSAN registration, French residents do not have access to them.
Some platforms, such as Bybit, offer this type of market freely. Leverage can be very high, so beware of your liquidation threshold and your analyses.
What is leverage?
Leverage allows you to increase your exposure to the market, thereby generating greater profits. Some platforms offer to multiply your trade by x2 and up to x100.
You borrow money from the platform at the time of the trade, along with a deposit. If your trade loses too much value, a threshold will trigger a liquidation. Note that an “isolated” trade will only take into account your contribution to the trade, whereas a “crossed” trade will use your overall crypto portfolio to delay the liquidation threshold.
Whether long or short, you can apply the leverage of your choice. Remain wary and calculate your Risk/Reward Ratio