Short selling
Also called: shorting · going short · short
Definition
Short selling is a way to profit from a falling price by selling an asset you have borrowed, or opening a short contract, and buying it back later at a lower price.
How short selling works
Classic short selling works like this: you borrow a coin, sell it immediately, and later buy the same amount back to repay the loan. If the price fell in between, you keep the difference. On crypto exchanges you can do this with spot margin, paying interest on the borrowed coin.
Most crypto traders short with perpetual futures instead. You simply open a short position; there is no explicit loan, but funding payments apply. Options, such as buying a put, are another way to bet on a decline with a limited maximum loss.
Shorting carries specific risks. A price can rise much further than it can fall, so losses on an uncovered short are open-ended until you close it or get liquidated. Crowded shorts can be caught in a short squeeze, and in some markets borrowing costs or funding can rise sharply. Regulations on short selling vary by country and product.
Example
Suppose you borrow 10 LINK on spot margin and sell them at 15 USDT, receiving 150 USDT. A week later LINK trades at 12 USDT. You buy 10 LINK back for 120 USDT and repay the loan, keeping 30 USDT minus interest and fees. If LINK had risen to 20 USDT instead, buying back would cost 200 USDT, a 50 USDT loss, and the loss would grow with every further rise.
Common mistakes
- Underestimating that losses on a short are not capped by the amount you started with.
- Ignoring borrowing interest or funding that builds up while the short stays open.
- Shorting a coin only because it has gone up a lot, without a clear exit plan.
Learn and practise
FAQ
Can you short sell crypto on spot exchanges?
Only if the exchange offers margin borrowing. Otherwise, shorting is done through futures or options.
What is the maximum loss when shorting?
In theory it is unlimited, because price can keep rising. In practice, leveraged shorts are liquidated, which limits the loss to the margin at risk.