Should I go long or short on cryptocurrencies? Which is the right way to go
Many cryptocurrencies obviously have a huge potential to increase in value and realize price rises. These are the ones you should go long on. By going long, you are purchasing the actual cryptocurrencies/tokens/coins in order to hold them and then sell them when their prices increase or go up.
Creating a more diverse portfolio requires going both short and long at the same time, advisable. This means you will rake in profits through long-term profitability of your cryptocurrencies when their value increases while still looking to gain some profits or reduce losses when the price of some coins drop.
This strategy may not entirely protect you from all of the crypto trading risks when trading, but they will put you in a strong position that allows you to profit no matter the price movement. That is if correctly done. However, it is essential to remember that the prices of many coins will always come down faster than they go up. Again, the strategy to adopt will vary from one crypto to another, so there is still work to do if you are invested in different crypto coins and want to know whether you should take a long or short position on a given coin at a certain time. Then mix the two strategies for different coins.
Therefore, right from selecting a good crypto exchange or trading platforms, it is advisable to choose an exchange or platform that allows you to go short and long at the same time on the same platform. In most cases, it will be much better to manage your long and short positions on or from a single platform.
This will allow you to react quickly as needed with short selling or taking a short position. However, the downside with many platforms that allow you to take both positions is that they charge a high fees, which means you need to do some comparisons on what is profitable -- managing from these platforms and which platforms charge lowest fees. An example of a platform that lets you take long and short positions on a single platform is eToro.
For instance, this can be the best position to start considering taking now when crypto prices are a bit lower although it is obviously necessary to assess whether any particular crypto could go lower than it is. Usually, although markets are said to decrease generally, some realize their best days when many others are at their worst. In other words, let each cryptocurrency be dealt with individually.
Playing safe with a long and short strategy combined is very safe in a very volatile market. Most of the trading in crypto as you might have heard is largely speculative. Therefore, there is no guarantee the person putting in money will make more, but it is obvious many do as others lose money.
For instance, a fine-tuned shorting strategy should therefore help you to protect your account against huge loses on your crypto portfolio because in some cases you can lose all if a trend is terribly against you. It can also help to gain profit in case you lost a chunk of your portfolio.
Going long on cryptocurrencies
As said, in going long on crypto, you will be making profit on the difference between the purchase and sell prices when the value goes up. This strategy relies on the trader's ability to identify which crypto assets are undervalued in order to buy them now with expectation of price increases in future. Quite a number of buyers who take long positions invest in and long hold ICO tokens, whose values are almost always undervalued and almost always pick up after start of the projects.
Taking a long position requires to basically open an account with an exchange platform and then buying with fiat. In most cases, you will require to buy Bitcoin and Eth or other popular coins with fiat and then ex/change Bitcoin with the altcoin or other cryptocurrencies. Apart from the many exchanges that let you buy via contracts for difference (CFDs) which means you do not get to keep the bought coins, there are some platforms such as eToro that allow you to buy and keep your Bitcoins.
Needless to say, going long may eventually translate to a long wait when the crypto value should rise or when the project should proceed to boost this perceived value. Otherwise, going long won't have a set duration because you can buy actual cryptocurrency today and then have its price increase tremendously within a month.
If you are investing in any crypto by taking a long position, make sure you look at a number of factors previously talked about -- the technology, ideas and teams behind the coins you invest in among many factors that could later boost the value. There are many others factors to consider as well including the market cap, community support e.t.c.
However, going long when a cryptocurrency is at peak is a dangerous move because for every asset, the price must come down first before the price can start a sustainable upward direction. Therefore, if you are going long, it is important to time when to buy and when to not. There are many methods you can use to predict movement including using different crypto trading indicators and staying tuned to communities.
Shorting cryptocurrencies
Little talked about, shorting cryptocurrency involves borrowing coins at the current rate when you anticipate a drop in their value and price in the future. You then sell those coins at the currently "high" price, then return the cryptocurrency to the lender when the market price is lower or when it drops. It means you will pocket the difference as the profit.
For instance, many people who turned to shorting Bitcoin in December already have gained lots of profits by pocketing the difference between $20,000 and $8,000 the current price; and still shorting is a worthwhile strategy to adopt even right now.
What makes short selling interesting or difficult is the fact that you have to understand and know criticisms of a certain technology in order to predict its price slumps. This is a hard thing to do because most projects are looking to focus on positive conversation that benefits their growth and ongoing, although what's growth is still debatable. Crypto assets do benefit even when many people are shorting it.
In fact, criticisms and difficulties are hard to see, find out and even notice within the first conversation. But they are not entirely lacking. Therefore, you might need to search for critical reviews or sought of things to be versed with details of what could go wrong even in the midst of positive news of various projects. Again, in addition to the criticisms against a cryptocurrency, you will need to fully understand it properly first. You might also require checking the alternatives to the technology and all that takes time and effort.
The way to short a given cryptocurrency is if or when for instance you believe that the notion Bitcoin is the future and all altcoins is a really waste of time, you could bet that the price will drop in future. But also, if you are a wise investor, it won't be true for all coins or altcoins. Prices of some will fall and others will rise in a normal markets. That's the way it is.
There are many ways of short selling cryptocurrencies including margin trading where you borrow cryptocurrency from a broker when the price is high and then trade it at currently high prices. It means if the price increase, you will be making loses but there are many ways you or the crypto lenders do prevent excessive losses from occurring. These methods are implemented on the trading platform itself.
Many people also take advantage of leverage to open these types of positions with a larger number of coins or assets than they actually have in their portfolio or than they can afford to buy at the present time. Margin trading with as much cryptocurrency assets allows you to make as much money even with small price movements. However, the risk of losing money is also multiplied the more the profits would be multiplied if price trend moves against your way. The good thing is that you can use stop loss and take profit tools to prevent huge disappointments and make more profits at times of extreme volatility.
A stop loss order is one that is created to close your position and prevent loss when the price trend is working against your predictions. Take profit allows you to safely lock in profits before the decline of the underlying asset. You can check some tips on setting stop loss and take profits here.
Examples of margin trading platforms include Bitmex, Poloniex and Bitfinex.
Contract for difference is another way you can invest in shorting cryptocurrencies without actually buying the coins. You will essentially be betting that the price is going to decrease or increase. You just sign a contract betting on the price direction and leave the market to determine things for itself. Prices moving your direction of bet or prediction means you are actually gaining profits while the converse is true if the bet is going against you.
Like CFD, they allow you to actually benefit even when the prices are going down. In most of the futures contracts, the costs in futures contracts are handled in cash instead of the actual commodity.
CFD is commonly the best way for day trading cryptocurrencies given the usually lower spreads. However, you will incur a swap fee charged by brokers when staying in a position overnight. Hence most CFD brokers are not suitable for your long term investing and holding.
Futures trading, another way of shorting crypto, basically allows people to minimize their risks which would make them not make profits when price goes too low. It allows to deliver the cost instead of the entire price amount of the cryptocurrency. Also, the actual commodity is not traded. If the trader is betting to have the price go down and it increases, they will pay the difference to the other contract party (usually a brokerage company).
It works as if you are agreeing to buy or sell crypto at a later price for a set date. If the price goes below the price you decided to buy at, you incur a loss and if it goes lower than the price you agreed to sell at in a later date, you profit from the bet.
Otherwise, if it goes higher than your bet future sell price, you make loss and will have to settle the difference.
Examples of futures include CME Group and Exante.
Options contract is another way of shorting cryptocurrencies and involves betting that prices will go low than a particular value in the future. This fall will then earn you a profit.
Binary options also involves taking a bet that the value of a cryptocurrency will go lower -- usually measured in hours within the end of the day. It is another method you can use to short crypto. This is done by executing a PUT order and the trader will earn the options payout after expiration. Otherwise, the risk is too high because you lose everything if you are incorrect.
A number of prediction markets will also allow you to short Bitcoin and other cryptocurrencies. You basically create an event and make a wager based on the outcome. You can predict the price movement of a given cryptocurrency by a certain margin or percentage and if anyone takes you up on the bet, you will stand to profit if it comes to pass.
Examples of prediction markets include Augur, Stox and Cultivatelabs. Augur decentralized prediction market, for instance, allows you to forecast and bet on company stocks, make predictions against weather, forecast politics through knowledge of political events, as well as do event hedging.
All the prediction events is done in Ether. Those creating events must post bonds, or stakes, in ETH and REP while those who want to act as reporters will also have to stake REP.
