How To Short On Kraken

Shorting, also known as margin trading, is a strategy to make money using crypto. It’s a strategy that comes with its risks, like any trading strategy, but the win is well worth it. 

Kraken, one of the most popular crypto exchange platforms, is very supportive of the shorting/margin trading strategy and even has some great features specifically designed to help you with it.

How To Short On Kraken

Not every crypto trading platform does this so that makes it a cut above the others when it comes to shorting.

In this guide we’ll show you how to short trade on Kraken, and take advantage of features, to make the most money that you can. 

What Is Shorting Crypto?

Shorting crypto is when you buy your crypto relatively cheaply and then sell it when the price is higher. The profit you make is the difference between buying and selling.

So let’s say your buy your crypto when the value is around $10 per unit, and you then sell it when the value is $16.

You’ve made a profit of $6 per unit. So let’s say you bought 50 units. 50 X $6= $300. So that’s $300 overall.

The problem with shorting is that most people who start out don’t have much money. So if they don’t have much money, how are they going to be able to start buying the crypto to sell it in the first place?

Kraken has a way to overcome this. They have their own brokerage system. 

The Kraken broker allows you to borrow crypto to sell, and then pay the money back later. It’s sort of like a loan, with the catch that you won’t actually be able to access any of your funds until you pay back the loan balance.

The benefit of this is that it removes the financial gatekeeping and can even increase your profit margin overall. But this is all dependent on actually making a profit.

It’s just as easy to make a loss too. Below is an easy guide to follow on how to short sell crypto on Kraken without making a loss. 

How To Short On Kraken

Kraken has got loads of great features that help with short selling. The broker system is one of its most useful features.

So in our quick guide on how to short, let’s assume you’re going to use the broker rather than your own funds. 

After opening an account on Kraken, and verifying your identity, and all other information, you’ll be ready to start trading.

Before you begin buying any crypto, you need to make sure you have the funds to do so.

This is where Kraken’s spot transactions come in. Spot transactions with the use of margin trading allow you to buy crypto where the balance of what you want to buy exceeds how much you have.

From the moment you open up a spot position on margin, there’s a countdown to paying the money back. 

The Order-type will depend on what you’re trying to do. Since you’ll just be beginning, the order type you select should be to buy.

The settle position, as shown in the above screenshot is for when you are paying off the debt. This will happen after the shorting process. 

The leverage you choose will affect the used margin. The used margin is just how much is needed to maintain an open position.

For example, at 2x leverage, ½ of the funds are used. Whereas at 5x leverage 1/5th of the funds are used. 

So let’s say you’re looking to buy 0.1 BTC and it costs $5,000 (hypothetically, the actual price of Bitcoin varies). At 5x leverage, your used margin is $1,000. At 2x leverage, your used margin is $2,500. 

Once you’ve completed the brokerage step and you’ve got your loaned crypto, you can then start the actual shorting process. 

The key thing to do is to watch the market trend. The aim of shorting is to sell your crypto at a higher price than what you bought it for.

So to short, just wait until the value of the crypto increases to a level higher than what you bought it for and then sell. 

In an ideal world, you’d have all the time in the world to wait for a price rise and if you’re using your funds then you have that luxury.

However, if you are using the Kraken loan, then there’s a time limit. You have to pay the money back in a certain amount of time.

That’s where the risk comes in. There’s always the chance that the value might not increase to the level you need to make a profit in the timeframe. 

And if that’s the case you will either make a loss, or best case scenario, breakeven.

But if you do make a profit, then the final step is to pay back the money borrowed. You will not have access to your funds until you do. 

If you want more information on how to short on Kraken then watch this helpful video. 

Final Thoughts About Shorting On Kraken

Kraken is one of the best platforms to use for short because of its loan feature. It makes shorting accessible to people who otherwise would never be able to afford to even start.

It’s easy to start but you should always be mindful of the way the market is trending for the crypto you want to trade. Also, be mindful of the fact that the markets can change on a whim.

So basically, just watch out in general. Shorting crypto is a very high-risk high-reward strategy that doesn’t always pay off.

But when it does, it’s worth it. To minimize your risk of debt, starting small and potentially using your own funds where you can is a good idea.

For more information about shorting on  Kraken, why not try a tutorial?

Justin Tregar
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