How to Make Money on a Fall in Cryptocurrency Prices?
Table of Contents
- 1 How to make money on a fall in cryptocurrency prices?
- 1.1 The Basics
- 1.2 The market decline is an opportunity
- 1.3 What is “Short”?
- 1.4 Margin trading
- 1.5 A falling market is an opportunity, not a tragedy!
How to make money on a fall in cryptocurrency prices?
After asset prices rise, sooner or later, a correction begins. However, even in such a difficult period, you can make your trading as efficient as possible. We will tell you about the best tools in our article.
The first thing that comes to mind when the value of cryptocurrencies or other assets starts to fall is to sell as soon as possible. It seems that this will reduce losses, but this is not always the case. According to some traders, it is better to buy during a fall and sell during an increase.
The market decline is an opportunity
A correction in asset prices after a sharp price rise is an opportunity to buy in anticipation of continued growth. However, you need to be able to analyze the situation and understand that a rollback occurs within an uptrend. In addition to technical analysis, fundamental factors need to be studied.
What is “Short”?
A short position or “short” is a trade when a trader takes cryptocurrency from an exchange secured by his assets and immediately sells it in anticipation of a price decline. When it falls, the trader can buy the same amount of coins that was borrowed, but cheaper, and return the debt to the exchange.
Short is a risky strategy
In the summer of this year, Elon Musk issued “red shorts” for traders who lost money trying to make money on the fall in Tesla shares. The shorts appeared on the Tesla online store. Since the beginning of the year, Musk’s securities have risen in price by more than 700%.
Short as a way of portfolio diversification
A short position can not only provide an opportunity to make money on a decrease in the price of a cryptocurrency or other asset. Thanks to the “short”, you can diversify your portfolio. However, this is a tool for experienced traders only.
Possible losses when opening a short position
When you open a leveraged short, the amount of the loss is increased by the amount of leverage. This means that when you conclude a deal to sell an asset with leverage of x10, the loss will increase 10 times. This must be taken into account when working with short positions.
When to go short?
Opening a short position requires special knowledge and skills. You need to be sure of further market decline. It doesn’t matter if it’s about cryptocurrencies, stocks, or commodities. In each case, you need to correctly assess the risk/reward ratio.
Professional traders know that you can earn more in a growing market than in a falling one. Leverage will help increase profits from working with assets that are losing value. Leverage allows you to increase income but also increases the risk of losses.
A falling market is an opportunity, not a tragedy!
A falling market often causes negative emotions for traders and investors. However, even in such conditions, you can earn money. The main thing is to use the “short” strategy correctly and also not to forget about the “stop-loss” and “take profit” orders.
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