A Beginner’s Guide to Short & Long Trading in Cryptocurrency

Understanding Going Long and Going Short in Crypto Trading

Welcome back to Salinix Crypto! In this article, we will delve into the concepts of going long and going short in cryptocurrency trading. Many people still have questions about these terms, especially those who are new to the signal group. So, let’s break it down and provide a comprehensive explanation.

What Does Going Long and Going Short Mean?

Going long and going short in crypto trading is essentially buying or selling a token based on your prediction of its price movement. Going long means you believe the price of a cryptocurrency will increase, so you buy it. On the other hand, going short means you anticipate the price will decrease, so you sell it.

To execute these trades, you can use derivatives, which are contracts derived from specific cryptocurrencies. These derivatives allow you to trade on the price movement of the underlying asset without actually owning it.

For example, if you go long on bitcoin at $21,000, you buy a contract that allows you to purchase Bitcoin at that price. If the price goes up, you make a profit because you can buy it at a lower price. Conversely, if you go short on Bitcoin at $22,500, you buy a contract to sell it at that price. If the price drops, you profit because you can sell it at a higher price.

Trading Derivatives on Exchanges

Most exchanges offer derivatives trading, which can be found under the derivatives section. One popular exchange is binance, but I personally use BuyBit for trading. If you’re interested, you can find a link to sign up in the description.

When you first look at the derivatives trading interface, it may seem intimidating. However, there are many features you don’t need to focus on initially. Typically, when going long or short, traders use leverage, which allows them to trade with more money than they actually have by putting up collateral.

It’s important to note that trading with leverage carries risks. If the price moves against your position, you can get liquidated and lose your entire collateral. For example, trading with 10x leverage means you can trade with ten times the amount of money you have. But if the trade goes against you by 10%, you get liquidated and lose all your funds.

While leverage is commonly used in long and short trades, it’s not mandatory. You can also trade without leverage, using only the funds you have.

Understanding Perpetuals and Futures

In derivatives trading, you’ll come across terms like perpetuals and futures. Perpetuals are contracts with no end dates, allowing you to trade without limits. When trading perpetuals, you put up collateral in USDT (Tether), a stablecoin pegged to the US dollar.

For example, if you’re trading Bitcoin against USDT, you buy and sell contracts using USDT. If you choose to use leverage, you also put up collateral in USDT. It’s essential to understand these terms to navigate the derivatives market effectively.

Executing Long and Short Orders

To execute a long or short order, you need to choose the appropriate trading pair and select the desired order type. Let’s take the example of Bitcoin against USDT on Binance.

If you want to open a long order, you use a limit order to specify the price at which you want to enter the trade. For instance, you may set a limit order to buy Bitcoin at $22,000. Once the price reaches that level, the contract is activated, allowing you to buy Bitcoin at $22,000. It’s important to note that if the price drops, you’ll still have to buy at the higher price, resulting in a loss.

When placing an order, you also need to specify the amount you want to trade. It’s advisable to set a take profit level and a stop loss level. Take profit is the price level at which you want to take your profits, while stop loss is the level at which you want to limit your losses. Proper risk management is crucial in trading, so always set these levels to protect your investment.

The process is similar for short orders. You specify the price at which you want to sell, and if the price drops to that level, the contract is activated, allowing you to sell at that price. If the price continues to drop, you profit from the trade.

Frequently Asked Questions

1. What is the difference between going long and going short in crypto trading?

Going long means buying a cryptocurrency with the expectation that its price will increase. Going short, on the other hand, involves selling a cryptocurrency with the anticipation that its price will decrease.

2. What are derivatives in crypto trading?

Derivatives are contracts derived from specific cryptocurrencies that allow traders to speculate on the price movement of the underlying asset without owning it.

3. What is leverage in crypto trading?

Leverage allows traders to amplify their trading positions by borrowing funds to trade with more money than they actually have. However, trading with leverage carries higher risks, as losses can exceed the initial investment.

4. What are perpetuals and futures in derivatives trading?

Perpetuals are contracts with no end dates, allowing traders to trade without limits. Futures, on the other hand, have specific expiration dates. Perpetuals are more commonly used in cryptocurrency derivatives trading.

5. How do I set take profit and stop loss levels?

When placing a trade, you can set take profit and stop loss levels to automatically close your position at a certain profit or limit your losses. Take profit is the price level at which you want to take your profits, while stop loss is the level at which you want to limit your losses.

In conclusion, going long and going short in crypto trading involves buying or selling cryptocurrencies based on your price predictions. Derivatives trading allows you to trade on the price movement of cryptocurrencies without owning them. It’s important to understand the risks involved and use proper risk management techniques, such as setting take profit and stop loss levels. Happy trading!

Note: This article is for educational purposes only and should not be considered financial advice. Always do your own research before making any investment decisions.