How to short cryptocurrency: steps and rules
To short cryptocurrency, open a margin or futures account, pick a coin, set leverage, sell, then buy back before liquidation. Keep trade records.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
On this page
- A rising price creates a loss on a short.
- The IRS treats crypto as property.
- Two-factor authentication protects your account.
- Leverage can make a loss larger than your deposit.
Shorting cryptocurrency means selling borrowed coins or using futures to profit if the price falls. You borrow coins or open a futures contract, and the venue holds collateral.
What you need before you start
You need a margin or futures account on an exchange that supports crypto shorting. CME Group began listing bitcoin futures in December 2017.
How to short cryptocurrency step by step
A short trade has a set order. The steps below show how to open the position and close it.
- 1Choose the coinCheck trading activity because a quiet market makes the buyback harder.
- 2Set leverage and collateralDecide how much of your money backs the trade. Higher leverage means a smaller price move works against you.
- 3Place the sell orderSell the borrowed coins or open the futures contract at the planned size. Check the order before you send it.
- 4Watch the positionTrack the price and your collateral. If the loss reaches the venue's limit, the exchange can close the position.
- 5Close the positionBuy back the same amount of borrowed coins and return them, or offset the contract.
What to do after you close
Closing a short is a taxable event in the US. The IRS treats crypto as property, so a short sale produces a capital gain or loss. Keep records.
Frequently asked questions
The position loses money because the asset is worth more than when you opened the trade. A large move can trigger a margin call or liquidation.
Shorting cryptocurrency is not banned by US law. The rules depend on the venue and the product. Registered US exchanges operate under federal oversight.
No. Exchanges usually list only a limited set of coins.
