How to short crypto

A short position gains when a price falls and loses when it rises. It is the mirror of the ordinary case, and it is the only way to express a view that something will decline without simply not owning it.

The distinction that matters practically is not whether you can short, but what you have to give up to do it — a borrow, collateral, or your existing position.

The traditional form. You borrow the asset from a venue, sell it, and later buy it back to return it. You pay a borrow fee for as long as you hold it, and the venue can recall the borrow.

It requires that someone is willing to lend the asset, which is reliable for large assets and unreliable for everything else.

A perpetual future has no expiry and no borrow. You open a short directly, posting collateral rather than sourcing the asset, and the contract stays open until you close it or it is liquidated.

In place of a borrow fee it has funding: periodically, one side of the market pays the other. That is a running cost or a running credit depending on which side you are on and what the market is doing — how funding works covers the mechanism.

The third route is the one general guides to this question tend to leave out. Instead of holding a short on its own, you hold it as one leg of a pair: short one asset, long another, sized against each other and opened together.

What changes is what you are exposed to. A standalone short is a position on the market falling. A short inside a pair is a position on one asset underperforming another — the shared market move largely cancels between the legs, and what remains is the difference. Someone who thinks a particular asset is weak, but has no view on whether crypto as a whole rises or falls, is describing a pair rather than a short.

It is also the route that does not require selling anything you already hold, because the short is a separate collateralised position rather than a disposal. That is a structural property, not an advantage in outcome: the pair can lose money in every market direction, and both legs are still leveraged.

A short position’s loss is not bounded the way a long position’s is. A long can fall to zero; a price that rises has no ceiling, so the loss on a short has none either. In practice the position is liquidated long before that — which is its own risk, not a protection from it, because liquidation closes the position at the worst available moment rather than at a chosen one.

Leverage is what determines how small a move triggers that. A position opened near a venue’s maximum is liquidated by a correspondingly small adverse move, and the maximum is a venue parameter rather than a recommendation.

Two legs mean two positions that can be liquidated independently. A pair is not a hedge that removes that.

Each pair page shows the ratio between two markets, the correlation of their daily returns over a stated window, and the venue figures for both legs. For the mechanics of holding two legs as a single position, see what pair trading is.