Can You Short Crypto on eToro? Guide for 2023

Yes, you can short crypto on eToro. Now let’s dive into the details and explore how to do it, the pros and cons, and some risk management tips.

Understanding Short Selling in Crypto

Short selling, or shorting, is a trading strategy that involves profiting from the decline in an asset’s value. In the
context of cryptocurrencies, shorting means betting that a particular cryptocurrency’s price will fall. When you short a cryptocurrency, you borrow the asset, sell it at the current market price, and hope to buy it back later at a lower price to make a profit.

How to Short Crypto on eToro

1. Create an eToro Account and Complete Verification

First, sign up for an eToro account if you haven’t already. Complete the verification process by submitting the required documents, such as proof of identity and address. This process is necessary to comply with anti-money laundering (AML) and know-your-customer (KYC) regulations.

2. Fund Your Account

Deposit funds into your eToro account through one of the available payment methods, such as bank transfer, credit/debit card, or e-wallets like PayPal, Neteller, or Skrill.

3. Search for the Cryptocurrency You Want to Short

Use the search bar at the top of the platform to find the cryptocurrency you want to short. eToro offers a wide range of cryptocurrencies for trading, including popular ones like Bitcoin, Ethereum, and Ripple.

4. Open a Short Position

Select the “Trade” button to open the trading window. Choose the “Sell” option to open a short position. Enter the trade details, such as the amount you want to invest and any leverage you want to apply. Remember that using leverage increases both potential profits and risks.

5. Set Stop Loss and Take Profit Orders

Set stop-loss orders to limit potential losses in case the market moves against you. A take-profit order allows you to lock in profits when the asset reaches a predetermined price level. These orders are essential for risk management when shorting cryptocurrencies.

6. Monitor and Close Your Position

Keep an eye on your open positions and market conditions. When you’re ready to close your short position, either let it reach the take-profit or stop-loss level or manually close it through the eToro platform.

Pros and Cons of Shorting Crypto on eToro

Pros

• Potential for profit in a declining market: Short selling allows traders to profit from falling asset prices, offering opportunities even in bearish market conditions.
• Leverage: eToro offers leverage on cryptocurrency trading, allowing traders to open larger positions with a smaller initial investment. However, leverage also increases potential losses.
• Access to a wide range of cryptocurrencies: eToro supports a variety of cryptocurrencies, providing traders with multiple shorting opportunities.
• User-friendly platform: eToro’s platform is intuitive and easy to use, making it suitable for both beginners and experienced traders.

Cons

• Unlimited potential losses: When shorting, potential losses are theoretically unlimited, as there’s no cap on how high an asset’s price can rise.
• CFD trading: eToro uses contracts for difference (CFD) trading for cryptocurrencies, meaning you don’t own the underlying asset. While this allows for shorting, some traders may prefer owning the asset directly.
• Risks associated with leverage: While leverage can amplify profits, it also amplifies losses, making short selling riskier.
• Short squeeze risk: A short squeeze occurs when the price of a shorted asset rises sharply, forcing short sellers to close their positions by buying back the asset. This can lead to significant losses and is a risk associated with short selling.
• Regulatory changes: Regulatory changes in the cryptocurrency market can impact your trading positions. Stay informed about potential regulatory shifts to avoid unexpected surprises.

Risk Management Tips for Shorting Crypto on eToro

Shorting cryptocurrencies can be profitable, but it also comes with significant risks. Here are some tips to help you manage those risks:

1. Do your research: Always conduct thorough research and analysis before entering a short position. Understand the fundamentals and technicals of the cryptocurrency you’re trading and stay informed about market news and trends.
2. Use stop-loss orders: Setting stop-loss orders helps limit potential losses in case the market moves against your position. Determine the appropriate stop-loss level based on your risk tolerance and trading strategy.
3. Set realistic profit targets: Establish a take-profit level to lock in gains when the asset reaches a predetermined price. Keep your profit targets realistic based on market conditions and historical price movements.
4. Manage your leverage: While leverage can increase potential profits, it also amplifies losses. Use leverage cautiously and consider your risk tolerance and experience level when deciding how much leverage to apply.
5. Keep an eye on market sentiment: Market sentiment can influence price movements in the cryptocurrency market. Be aware of market sentiment, and consider adjusting your trading strategy accordingly.
6. Practice proper risk management: Risk management is crucial for any trading strategy, including short selling. Diversify your trading portfolio, use appropriate position sizing, and don’t risk more than you can afford to lose.

Conclusion

In summary, you can short crypto on eToro through CFD trading. Short-selling cryptocurrencies can be profitable, but it comes with significant risks. To succeed in short selling, it’s crucial to conduct thorough research, use proper risk management techniques, and stay informed about market conditions. Always remember to trade responsibly and never risk more than you can afford to lose.

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GENERAL RISK WARNING

• ▸eToro is a multi-asset platform that offers: Stocks, Crypto assets, and CFDs.
• ▸CFDs are complicated and can make you lose money quickly because of leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. Think about if you understand how CFDs work and if you can afford to take the risk of losing your money.
• ▸Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
• ▸Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
• ▸Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
• ▸eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity-specific information about eToro.

Be warned!

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Author & Expert Trader - Financial Analyst :

My name is Bart Bregman and I am a full-time professional trader with nine years of experience. I specialize in shorter-term trading using technical analysis, and I have extensive experience with Stocks, CFDs, Options, and Crypto trading. I believe that there is no such thing as a bad trade. I'm currently traveling the world as a digital nomad trader. You can follow my journey on Instagram at https://www.instagram.com/bart_bregman/