How to Short Ethereum in 2022

First things first. What exactly does it mean to ‘short’ Ethereum? 

Well, in the context we are referring to in this article, it simply means to sell instead of buy. Instead of ‘going long’ and profiting from an increase in the value of Ethereum’s coin, Ether (or ETH), you can ‘go short’ and profit from a decrease in value. 

The common consensus when trading cryptocurrencies is to buy low, and sell high, after all we’ve witnessed insane bullish price rallies in recent times. 

2021 saw exponential growth of over 500% for Ethereum, with highs reaching over $4,850 from $743. Long-term predictions are only onwards and upwards, with some analysts predicting 2022 may even see highs of$12,000 for the world’s second largest cryptocurrency.

However, in between these rallies come inevitable dips in price, which happen quickly and sharply (cementing crypto’s reputation as being volatile assets).

Taking advantage of these price dips allows for a second profit avenue from the regular buy and hold strategy.

So how do I trade these dips? 

First, you need a broker that trades in crypto derivatives,  (in walks yours truly,CryptoAltum). 

Derivative trading allows traders to speculate on price action only. This gives a huge advantage over buying and selling from an actual exchange in that you can take short positions on without having to own the cryptocurrency you are selling first. 

Second, you need a few tools to help identify when the price has peaked, and a dip is imminent. 

We like to use a combination of the following:

Technical Analysis

We are fans of using a combination of the Moving Average, Relative Strength Index and Bollinger Bands. Making sure all these indicators are also aligned with your prediction gives a much great chance of a successful trade. Read the articles we’ve linked to for all the specific levels you should be watching out for. 

Fundamental Analysis

Check the news; is all the hype surrounding the rally starting to die down? Are there rumours the price is about to crash? Twitter and Telegram are great platforms to stay informed in the crypto world, we highly recommend following some top crypto influencers and news sites so you can stay ahead of the game.

 Another huge advantage of CFD trading is that it is margin trading. Margin is the amount of funds that you will need to put down out of your own pocket to open the trade. Imagine it’s like a deposit for the trade. Your margin is returned to you along with your profit when you close the trade. The only time your margin is at risk is if you employ no risk management on the account (and who would do that, right?) and the losses of the trade extend over your account value. In this case, your margin amount is lost. This can easily be prevented by using stop loss orders on your trade. Using these orders is simple, you just decide the % of your balance you are willing to risk and set your stop loss to automatically trigger once that amount has been realised. Our team is available 24/7 to assist with setting any such orders to make sure you get it right if you are new to the markets. 

Let’s give you an example of margin trading (also referred to as trading with leverage). Exchanges may offer leverage of 1:5, maybe even 1:20 at a push. CryptoAltum offers the market’s highest leverage at 1:500.

Now, what exactly does this mean? 

At the time of writing, ETH has hit highs of around $3,000. This means that if you want to short 1 ETH, you need to put up $3,000 of your own funds as margin. Trading using leverage however, reduces this amount, by the amount of your leverage. For example, if your leverage is 1:500, this $3,000 now becomes a much more manageable $6 (3000/500). 

Great, right? 

Now, tempting as it is, don’t fall into the trap of using leverage to open trades that are hugely over your account value. Although you have a chance at increasing your profits this way, it is putting your account at great risk of stop out, as any price movements are hugely amplified and can wipe your account in a split second. Be smart, and use leverage to reduce your margin amount while still opening sensible volumes. 

Here’s a table to show how leverage affects the initial margin that you are required to put down to open a trade of 1 ETH (assuming an ETH value of $3,000):

Enough with the calculations, back to trading…

So, our technicals and our fundamentals are both aligned with our downwards prediction, and we place a SELL 1 ETH trade at 3,172.58. Low and behold, our price prediction was correct, ETH has now fallen to 3092.98 and we close the trade:

Our profit is $79.59. Now, if we had traded 2 ETH our profit would be $159.18. If we had traded 5 ETH, our profit would be $397.95, and so forth. Here’s a table to show exactly how trade volume affects the end profit:

The key takeaway here is that you do not need to wait for prices to rise to make a profit. You can still employ long term buy and hold strategies, while profiting in the short term on these frequent, and quite often dramatic falls in price. We recommend to all our traders to open a free demo account, where you can practice trading with zero financial investment and zero risk. Have a play around with the platform (don’t worry, you can’t break it!) and start to become familiar with the charts and the basic functionalities. Then, when you are confident, start with a small account and take it from there. The team at CryptoAltum will be there to support you at every step of the way.

Have questions? 

Reach out to us now! [email protected]