The cryptocurrency market has caught the attention of many investors due to the novelty of the assets and the numerous opportunities they provide traders in terms of the price action and volatility that these new digital assets are now best known for.
You've probably already heard plenty of stories about the insane returns of various coins, be it memes or cryptocurrencies, that will shape the fintech world in the future. But a coin can't just keep going up, right?
You're right, it can't. Every crypto has periods where its value goes up, and correspondingly periods where its value goes down. Let's take a look at how a trader can take advantage of both market movements with the help of Margex, a crypto exchange that allows investors to use leverage and maximize trading profits.
What is a long position in crypto trading and how does it work
Long position is essentially when a trader predicts that the value of the cryptocurrency will go up in value. This type of position goes well in pair with a bullish market movement and consists of buying an asset such as cryptocurrency and selling it later for a profit. In short, a long position in crypto trading can be described as buying low and selling high.
Pros of a long position
✔️ Allows traders to profit from bullish market movements
✔️ Considered less risky in the long term as most assets have positive price performance over long periods of time.
Cons of a long position
❌ You’re prone to negative market news that could affect your long
❌ The longer you wait, the more exposed you are to the possibility of market sentiment changing from bullish to bearish
Let's create an example of a position where you go long, and for this we'll assume the price of BTC is $10,000. After careful analysis, you decide that BTC is ready to go up, and you establish a long position for 10 Bitcoins. The total capital required to open such a trade would be 100,000 USD.
Once BTC reaches 11,000 USD, you decide to close the position and book a profit equal to the difference between the buy price and the sell price. In our example, this would give you a profit of $10,000.
Alternatively, you can use Margex to your advantage and, by using 20 times leverage, establish the same long position with 20 times less capital required. Thus, the cost of opening a position of 10 BTC that has a total order quantity of 100,000 USD would require a margin of only 5,000 USD in your account.
Once BTC reaches 11,000 USD, you can close the position and book a profit of 10,000 USD, the main difference being that you have only risked 5,000 USD as opposed to 100,000 USD without the use of leverage.
What is a short position in crypto trading and how does it work
A short position is the opposite of a long trade. It is notorious for allowing investors to remain profitable even in bear market movements and consists of borrowing an asset, then selling it on the open market and buying it back later at a lower price, keeping as profit the price difference between selling at a higher price and buying it back later. Short positions allow the sale of an asset for a speculative reason without having purchased it before. Briefly put, short trades can be described as selling high and buying back low.
Pros of a short position
✔️Allows traders to profit from bearish market movements
✔️Gives you the opportunity to sell an asset without owning it and profit from the price difference when you buy it back.
Cons of a short position
❌ Market conditions can change and cause you to lose money
❌ Can be more susceptible to volatility
Let's say you think BTC is overvalued, and you want to bet against it. Suppose also that the price of one bitcoin is $10,000. To do this, you would open a short trade with 10 bitcoins for a total position size of 100,000 USD. Since you borrowed 10 bitcoins and sold each of them at 10,000 USD, and now the bitcoin has depreciated to 9,000 USD, you can profit significantly from the price difference.
You close out your short position, return the borrowed bitcoins, and are left with a profit of USD 10,000 since the 10 borrowed bitcoins are now worth a total of USD 90,000 compared to USD 100,000 at the time you borrowed them.
Because it is not easy to set aside 100,000 USD to trade with, let us now add leverage to the deal. By adding 20x leverage, the total cost of opening a position with 10 bitcoins will now cost you 5,000 USD instead of the original 100,000 USD compared to not using leverage.
How to long crypto on Margex
Step 1: Open an account with Margex
The process of opening a Margex trading account is quite simple. Simply click on the "Start Trading" button located at the top of the page. Enter your email and password and click on "Register". Once you confirm your email, you can log in to your account.
Step2: Fund your account
To start trading, you will need funds in your wallet. To fund your account, go to the "Wallet" section of the top menu and click "+Deposit".
From there, select your preferred cryptocurrency and complete the deposit process. Alternatively, if you don't have any cryptocurrency, you can use Changelly and ChangeNow's direct integrations to fund your account with a credit card.
Step 3: Start trading
Head over to the "Trading" section of Margex and get started by selecting your trading pair. Once you've selected which cryptocurrency you'll be trading, you're ready to execute your order using the trading terminal on the left side of the trading chart. Once you have performed a market analysis and selected your entry point, you are ready to enter your order size and leverage.
Click BUY/LONG to open a long trade, and start monitoring your trade from the position box below. Once you are satisfied with the trade, simply close it.
Tips: By hovering over the question mark in each field, you will get detailed information about your order and how much of your capital is at risk. For better risk management when working with leverage, it is recommended to use protective orders such as stop-loss and take-profit
How to short crypto on Margex
Opening short positions on Margex is relatively easy and follows the same pattern as opening long ones.
Step1: From the top menu of the "Trade" page, select a trade pair that you think will decrease in value.
Step2: Enter order details, such as Position Size (leveraged), and use the leverage slider or the small pen next to it to enter custom leverage.
Step3: Click Short/Sell, double check your order details and submit the order. Once you are satisfied with the outcome of the trade, proceed with closing the trade and collecting the profit using the “Open Positions” tab below the trading chart.
Long vs Short Position in Crypto - Comparison
Both types of positions are essential in trading as they provide investors with the ability to predict and profit in all market conditions. They are considered complete opposites of each other, but the trader does not necessarily have to strictly choose one side. Market sentiment can change drastically over time, and different types of positions, whether long or short in crypto, are the foundation of trading. Both types of positions are widely used by traders, often at the same time, but it is important to learn how to find the key resistance levels and not overdo it with long positions and key support levels for short positions, respectively. Longing near the top or shorting near the bottom of the market can be particularly dangerous given the high volatility of crypto assets.
The simplified table below should serve as a rule of thumb for deciding whether it's a good time to go long or short in cryptocurrency trading, but as with anything else, it's not foolproof and every trade you make should be backed up with a reasoned decision.
Conclusion
Both long and short cryptocurrency trades are essential to maintaining a fair market, allowing investors to judge which cryptocurrency is overvalued or undervalued and trade in both directions. Since they are the exact opposite of each other, long positions allow traders to bet on positive price movements, while short positions allow traders to profit from a down market. Combining the ability to open trades, whether long or short, with margin trading gives investors greater exposure to profit from cryptocurrency volatility.
What are longs in crypto?
Longs in crypto are market predictions that the value of a cryptocurrency will rise. Long positions consist of buying an asset and selling it later at a higher price, profiting from the difference between the price at which it was bought and the price at which it was sold.
What are shorts in crypto?
Shorts in crypto are market predictions that the price of a cryptocurrency will fall, and consist of borrowing that cryptocurrency from a broker, selling it, and then buying it back later at a lower price, profiting from the difference between the sale and repurchase price.
How to short crypto?
Opening a short crypto trade is done through trading platforms, such as Margex, that allow traders to borrow digital currencies and sell them, later buying them back and returning them to the broker to keep the profit on the difference between the sell price and the buy price.
How to long crypto?
To take a long position in a cryptocurrency, go to a digital asset exchange, select a trading pair, and after doing analysis and determining that the value of the asset will rise, go to the trading terminal and after entering your order details, submit a long position by pressing BUY/LONG.
How do you know when to long or short?
Knowing exactly when to enter a long or short position should be based on technical and fundamental analysis. The use of charting tools and an understanding of market sentiment and trends are critical to selecting an appropriate entry point when deciding whether to enter a long or short position.
What are some risks associated with taking long or short positions in crypto?
Taking either long or short positions in crypto carries certain risks. For example, if you take a long position and the value of your asset decreases instead of increasing, you could end up losing money on your investment. Similarly, if you take a short position and the value of your asset increases instead of decreasing, you could end up losing money on your investment as well. Additionally, there are also risks associated with market volatility and liquidity which can affect both long and short positions.
