How To Profit By Short Trading in A Bear Market

Dear Bitruers,

Do you know that futures trading can be profitable both in a bull and bear market? Want to find out how you can stay profitable in a bear market? Let’s find out more with Bitrue!

In a bear market, the value of currency pairs will fall and that is when an opportunity to short to gain profit arises.

What Is A Futures Short?

A short is an investment or trading strategy that speculates on the decline in the price of a cryptocurrency. In short selling, a position is opened by borrowing a cryptocurrency or other asset that the investor believes will decrease in value. The investor then sells these borrowed cryptocurrency to buyers willing to pay the market price. Before the borrowed cryptocurrency must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost. The gain mainly comes from the price difference between selling and closing the position.

For example:

Assuming 1 USDT = $1, when the BTC price reaches $20,000:

USDT Margin Contract (forward contract): use 10000 USDT, 10 times leverage to short 1 BTC, which is currently equivalent to having 10000 * 10 = 100000USDT 100000/20000 = 5BTC

Assuming a 10% drop in BTC price ($20,000 to $18,000), the gains are as follows: 

Through calculation, the USDT futures and the U-based futures will profit at the same time when the BTC price falls, but converted to fiat currency value gains will also profit 10,000 USDT.

From the example above, you can understand better how to profit from short futures trading.

How exactly does it work? By following these steps, you can start learning how to make short contracts on the Bitrue contract platform.

1. Transfer USDT to U-based futures account as margin; (in Bitrue U-based futures, you need to transfer BTC)

2. Choose your leverage ratio; (to avoid losses, try to choose a small leverage ratio)

3. Enter the number of futures you have selected and the right price.

4. Choose the right direction (to sell);

These are the steps of Bitrue futures shorting, you can click on the futures to start shorting now!

How to Calculate for Achieving Profit and Loss & Return
U-based futures

• The user selects the marked price as the price base:

Unrealized Profit and Loss = Number of Positions * Opening Direction * (Marked Price - Opening Price) Rate of Return% = Unrealized Profit and Loss USDT/Starting Margin = ( ( Marked Price - Opening Price) * Opening Direction * Number of Positions)/(Number of Positions * Contract Multiplier * Marked Price * Starting Margin Rate)

* Initial Margin Rate = 1/Leverage

• The user chooses to use the latest price as the price base:

Unrealized Profit and Loss = Number of Positions * Opening Direction * (Latest Price - Opening Price) Rate of Return% = Unrealized Profit and Loss USDT/Starting Margin = ( ( Latest Price - Opening Price) * Opening Direction * Number of Positions)/(Number of Positions * Contract Multiplier * Mark Price * Starting Margin Rate)

Opening direction: buy order is 1; sell order is -1

Currency Standard Futures

• The user selects the marked price as the price base:

Unrealized profit and loss = position quantity * contract multiplier * position opening direction * (1/opening price - 1/mark price)

Return% = Unrealized Profit/Loss * Marked Price/[Absolute Value (Number of Positions) * Contract Multiplier * Initial Margin Rate]

• The user chooses to use the latest price as the price base:

Unrealized profit and loss = number of positions * contract multiplier * opening direction * (1/opening price - 1/latest price)

Return% = Unrealized Profit/Loss * Marked Price/[Absolute Value (Number of Positions) * Contract Multiplier * Initial Margin Rate]

Summary

Given the price instability of the cryptocurrency tokens market such as BTC, the use of futures and other tools to manage risks has become an opportunity for everyone to re-examine the derivatives market, and the substitution of leverage has given people the opportunity to offset potential losses and maximize potential benefits.

In this process, risk hedging and its related strategies have provided us with a new way of thinking and new compositions of our investment system about how to increase the complexity of the strategy in order to minimize the risk and maximize our profit. In the ever-changing investment market, this is something we need to consider, practice, and reflect on.

With the increasing correlation between traditional and decentralized financial markets, some new investment strategies are bound to arise. Bitrue will continue to pay attention to the effectiveness of these strategies.

Warning: None of the articles constitutes any investment recommendation, there are always risks in carrying out investments and you should consider your personal risk tolerance. We recommend you to do your own research before making any decisions.