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If you’re brand new to crypto trading, the endless amount of jargon can seem extremely intimidating. In this article, we’re going to tackle one of the big ones that you’ll see just about everywhere: how to long/short crypto coins.
There are two types of crypto trading positions: long positions, and short positions. Traditionally, these terms have been associated with hedge funds. But increasingly, they are being used in association with cryptocurrencies.
Explaining the difference between a long strategy, a short strategy, and a long/short strategy
A long investment strategy, often referred to as “taking a long position”, means you’re buying an asset outright with the expectation that it will increase in value. An example of this would be buying Bitcoin or Ethereum on a marketplace and holding it with the hope of it increasing in value.
A short investment strategy, often referred to as “taking a short position”, means you’re borrowing the asset instead of buying it outright. This is generally done when you’re expecting the value to decline, because you can sell the asset at a high price, and then pay your lender back at a lower rate after values decrease – then you can keep the difference for yourself.
As you might have guessed, a long/short strategy is essentially a combination of both of these strategies. It means that you take a long position on assets that you expect to increase in value, and a short position on assets that you expect to decrease in value. And you make a profit from both.
What is a successful long/short crypto strategy for beginners?
The best strategy is one that enables you to diversify your investment portfolio. Because crypto coins are so volatile, you ideally want to do a bit of both longing and shorting.
In order to “go long”, you want to look for cryptocurrencies with long term profitability. This is more likely to be the more popular, well-known coins with a large market cap, such as Bitcoin and Ethereum.
To “go short”, you want to look for cryptocurrencies that will enable you to quickly profit from price drops – think of memecoins like Dogecoins, which rise and fall depending on Elon Musk’s tweeting habits!
A few years ago, Motley Fool co-founder David Gardner shared an invaluable piece of advice for new traders. It can be applied to any kind of trading – but it fits crypto trading particularly accurately:
“Stocks always go down faster than they go up, but they always go up more than they go down.”
Take some time to study some crypto price charts, and you’ll notice that many of them tend to follow this rule.
There are two types of crypto markets where you can use long/short crypto strategies: derivative markets, and spot markets
A spot market is the most common type. It allows users to buy and sell crypto at any time, but also comes with limitations – traders will only make money if the price of an asset goes up; if the price of an asset goes down then they will lose money.
The derivative market, on the other hand, is based on speculation. A derivative is essentially a secondary contract that derives its value from the performance of an underlying asset. You might have heard of crypto futures, crypto options, and perpetual contracts – these are the most popular crypto derivatives.
For instance, you might believe the price of Bitcoin will go up, while someone else believes it will go down. You both sign a contract. After a period of time, once the price has changed, one party will be required to pay the other party the difference in price.
Over the past couple of years, there has been a surge in the crypto derivatives market. In May 2021, it reached its peak with a total trading volume of USD 5.5 trillion.
It can be difficult to find a beginner-friendly decentralized derivatives trading platform, which unfortunately ends up turning a lot of people away from the space. Fortunately, this is changing.
Platforms such as SynFutures are working to overcome the limitations of centralized derivatives exchanges and push the boundaries of the industry by creating next-generation crypto derivatives platforms suitable for beginners. Since starting at the beginning of 2021, SynFutures has grown rapidly. In January, it raised a USD 1.4 million Seed round – then in June, it raised a USD 14 million Series A funding round.
SynFutures enables users to create asset pairs in a permissionless way, and take leveraged long or short positions based on anything. This includes BTC, altcoins, gold, hash rates, NFTs and also real-world assets. Any project can create its own futures market margined in project tokens, and any user can list trading pairs in as little as 30 seconds.
To get more advice on how to long/short crypto coins, and to become part of a vibrant community of members helping each other out on their investment journey, join the SynFutures community on Telegram.