Understanding Futures Trading as a Short-Selling Strategy

LBank Exchange
5 min readAug 15, 2023
Understanding Futures Trading as a Short-Selling Strategy

Understanding the concept of Short-Selling, commonly known as “Shorting”, is important for individuals trading crypto futures. It is simply a strategy that allows you to profit from a falling market, a falling sector or a falling industry. The term “shorting” is not new. In fact, it has been used in virtually every financial market — options, commodities, futures and currencies.

Within the futures trading niche, traders are obliged to either purchase or sell the underlying asset upon the predetermined expiry date. On the contrary, perpetual swaps lack an expiration date but necessitate traders to allocate funds for profitable positions. In essence, this involves compensating the trader on the opposing end of the transaction to maintain the ongoing validity of the contract.

It’s worth noting that trades involving futures can be categorized as either long or short positions, wherein leverage can be employed to maximize these positions. Short selling is a way to capitalize on the market’s volatility while not wasting time if the market falls.This guide will explore in detail the basis on short-selling and how it applies to crypto futures.

What is Short-Selling?

Short selling is a trading strategy that involves selling assets not necessarily owned by the seller in hopes that the price will keep falling. More specifically, it is the short sale of a crypto asset in anticipation of a decline in its price. It is the direct opposite of selling long. When you “long” an asset, you anticipate an increase in the price of the asset.

One simple way to short-sell crypto is by selling high and buying low. However, beyond this, traders can short-sell by exploring derivative products such as futures contracts or options on crypto-related stocks or ETFs. Let’s explore how these work.

Why Sell Short?

There are several reasons to consider shorting crypto.

Hedging: is one such major reward of short-selling. Hedging is the practice of diversifying positions such that, should make the market move significantly in one direction or another, the trader is covered either way. For example, a trader who has bought bitcoin but wants to safeguard the position against a market downturn can use derivatives trading strategies to make profits if the actual price of bitcoin drops. Hedging can be performed by diversifying between market sectors as well as direction.

Arbitrage opportunities: The practice of short selling can give rise to arbitrage opportunities, allowing traders to capitalize on price disparities across various markets. To illustrate, a trader could short sell an asset in the spot market and subsequently repurchase it in the futures market at a reduced price, thereby accruing a profit equivalent to the disparity in prices.

Leveraged position: Traders with a huge risk appetite are drawn to volatile assets like bitcoin contacts to make massive profits and equally huge losses. Warning, without a proper and well-structured approach to studying the market, you can incur unlimited losses.

How to short Bitcoin on LBank

Traders can short crypto on LBank. The trading platform allows you to trade bitcoin futures contracts, facilitating the borrowing and repaying of assets. Also, the exchange understands that shorting crypto is a good way to earn profits.

To initiate a BTC short position on LBank, follow these straightforward steps after logging into your trading account:

Step 1: Access the “Trade” Section

Navigate to the “Derivatives” section located at the top of the LBank interface. You can choose between “Futures” or “ETF.”

Step 2: Select the Target Asset for Shorting

Opt for the asset you intend to short. For instance, if you wish to short Bitcoin against USDT, click on BTC/USDT from the dropdown menu of trading pairs situated at the top left corner of the screen.

Step 3: Choose the Shorting Product

While short selling on LBank, you will have to utilize products such as futures. This can be made by selecting “Derivatives” from the menu placed atop.

Step 4: Input Trade Details

In this example, let’s assume you are trading BTC/USDT perpetual contracts. However, these steps apply irrespective of the specific product chosen for shorting BTC.

First, determine whether you want a limit, market, or stop order. Then, input the desired shorting price, select the preferred leverage factor (opt for 1x for no leverage), and specify the BTC quantity for the short position. After verifying the entered details, confirm by clicking the “Open short” button marked in red.

Your order will be visible in the “Open order” segment of the trading dashboard until it gets executed. Once filled, you can monitor your short position within the “Positions” section.

Step 5: Close Your Position

When the time comes to close a position, proceed to the “Positions” tab. Enter the corresponding amount for the position you intend to close.

Finally, by clicking the “Close” button situated next to the open position, you can execute the position closure. Alternatively, you have the option to close all your positions at the prevailing market price by selecting the green “Close All” option.

Wrapping Up

While short-selling significantly enhances market liquidity and efficiency by facilitating the swift movement of assets, this strategy demands a solid understanding of the crypto market dynamics and a level of expertise. As a result, novice investors, due to their limited knowledge of these intricate dynamics, might not find short-selling a suitable approach to their investment endeavors.

When exploring crypto futures, LBank offers many options and solutions, streamlining the trading experience. Distinctive in its offerings, LBank enables traders to optimize their earnings through leverages of up to 125x, while also providing a consolidated array of informative indicators, all accessible within a single interface. This amalgamation of features equips traders with the tools they need to make clever decisions in their trading journey.

Disclaimer: Derivatives are often volatile, and this can be a risky investment. The information provided in this article is solely for educational purposes and shouldn’t be regarded as financial advice.