Binance has become the pacesetter in the cryptocurrency exchange space. As the leading cryptocurrency trading platform, Binance has been innovative over the years, providing several services to cryptocurrency traders. One Binance’s most interesting features is the Binance Futures. This service makes it possible for people to short or long several cryptocurrencies. Although BitMEX has made a name for itself in the Bitcoin shorting and longing sector, Binance is proving to be a tough competition. Hence, the reason why we want to show you how to short Bitcoin on Binance.
What Are Bitcoin Futures?
Bitcoin Futures makes it possible for traders to buy or sell Bitcoin at an already predetermined price at a preset date, a term that is also known as a settlement. The buyer of the contract is under an obligation to buy Bitcoin when the price expires, while the seller is expected to provide the asset.
Binance makes use of perpetual contracts, which are a bit different from the normal traditional futures contracts. With the perpetual contacts, there is no preset expiry and settlement date. Instead, they are linked to the spot index price, and the trader can decide to terminate the contract whenever he or she desires.
This means that when purchasing or selling a perpetual contract, the trader doesn’t have an obligation to buy or sell the BTC at a predetermined date. Rather, they can close their position when they wish.
You should know that Bitcoin futures on Binance are traded against the USDT (Tether). In June 2020, Binance Futures launched a quarterly futures contract for its BTC/USD trading pairs. However, the maximum leverage for these quarterly futures is 125X. Also, unlike the perpetual contracts, the quarterly futures have a deliver date (every three months).
Which Cryptos Does Binance Futures Support?
Binance offers its futures services to several other cryptocurrency pairs asides Bitcoin. Some of the trading pairs available on the Binance futures platform include;
- Ethereum (ETH) / USDT
- Ripple (XRP) / USDT
- Binance Coin (BNB) / USDT
- Bitcoin Cash (BCH) / USDT
- Cardano (ADA) / USDT
- Stellar (XLM) / USDT
- Tron (TRX) / USDT
- EOS / USDT
- Litecoin (LTC) / USDT
- Ethereum Classic (ETC) / USDT
- Chainlink (Link) / USDT
- Monero (XMR) / USDT
- Dash / USDT
- Zcash (ZEC) / USDT
- Tezos (XTZ) / USDT
- SXP/USD, and
Why Trade on Binance Futures?
You should consider trading Bitcoin futures on Binance for the following reasons;
- It allows you to hedge your positions and boost your risk management. Thus, protecting your cryptocurrency portfolio during bear trends.
- Trade with leverages
Binance allows users to trade Bitcoin futures with leverage of up to 125X. However, traders should keep in mind that margin trading comes with a significant amount of risk, and they can lose their capital faster than if they didn’t use leverages. Hence, it is not recommended for beginners, but instead, experienced traders with a vast knowledge of the matter.
Now that you know the basics of shorting Bitcoin let us dive deeper into how you can short Bitcoin on Binance.
How to short Bitcoin on Binance
Follow this step-by-step instruction on how to short Bitcoin on Binance
Step 1: Create an account.
The account creation process is easy and takes less than 10 minutes to complete. Provide your active email and password and set the two-factor authentication (2FA). Since we might be using leverages, you need to open a margin account on Binance.
To do so, log in to your Binance account and head over to your profile. From the dropdown, click on your account dashboard. Click on ‘Margin’ to open your margin trading account on Binance. Click on the “Open margin account” button, accept the terms and conditions, and submit your application. Your Binance margin account will be created.
Step 2: Fund the account
Next, you need to fund your Binance margin account. To do so, navigate to and click on the “Wallet” tab, select “Margin” and hit the “Transfer” button available on the page.
Select the coin you wish to transfer. In this case, we are using BTC. Insert the amount you wish to transfer from your regular Binance wallet and confirm the transfer.
If you want to use leverages, you can borrow from Binance. The coins you transferred to your BTC account serves as your collateral, and you can use up to 125X leverage on the futures trading. Choose BTC and insert the number of coins you wish to borrow. After that, your margin account will be credited with the BTC you borrowed, and you can trade the cryptocurrency with it.
Step 3: Analyze the market
After funding your margin account, you should analyze the market via charts and indicators. Binance offers charting tools that can help you research and determine the price trends of the cryptocurrencies. Some of the indicators you can use include the Moving Averages and more. Since you are shorting Bitcoin, you should look out for downward trends.
Step 4: Create a short order
Choose the BTC/USDT pair on Binance and create an order. You should fill out an order, as seen in the middle of the page. Fill out how big the order is and release it to the market by clicking on SELL BTC. However, if you want to use the leverage option, it is available for you. This means that you can sell 15BTC when you only have 1BTC on your wallet as you use the 15X leverage option.
Step 5: Watch market behavior
We aim to short Bitcoin. Hence, price growth will lead to us losing money. Thus, we have to keep an eye on the market and see how it behaves. To limit the loss, you should set a stop-loss on the trade. This would decrease your losses should there be a Bull Run.
However, if the price of Bitcoin goes down, you will be making a profit. Watch the market closely and be very active when the price falls down sufficiently.
Step 6: Close the order
After the price of BTC drops significantly compared to the USDT, you should click “Close order” to get it out of the market. After closing the order, you can repay the BTC you borrowed as leverage from the platform.
After repaying the loan, you will have your original BTC and the profit you earned from shorting the cryptocurrency after paying back what you owed. However, keep in mind that Binance takes a share of your profits if you are paying fees with other coins asides BNB (Binance Coin). The fee ranges from 0.012% to 0.10%, depending on your transaction volume and your verification tier. Check out the Binance Futures fees.
What are the Risks with Shorting Bitcoin?
We will highlight some of the risks involved in shorting Bitcoin. You are betting that the price of Bitcoin will drop in the future. However, keep in mind that the trends might not go as planned for numerous reasons. Here are some of the risks associated with shorting Bitcoin.
- BTC price growth will lead to losses on your Binance account
- Instant price spikes can lead to liquidation
- If the price remains stable, rollover fees will affect your eventual profit rate
- Using high leverage means that the liquidation rate might be too close to the starting price.
Shorting Bitcoin is an excellent way to hedge your coins and protect your cryptocurrency portfolio during a bear market. However, you need to have an in-depth knowledge of the market and be an expert in market analysis before you venture into shorting Bitcoin due to the risks involved.