Complete Guide to Short Selling | The Core Differences Between Bullish and Bearish Trading

In cryptocurrency trading, the two most frequently mentioned concepts are “long” and “short.” If you’re new to the trading world, these terms might be confusing at first, but understanding the true meaning of “short” is crucial for grasping how the entire trading market operates. Whether you’re aiming to profit from upward or downward price movements, you need to understand these basic concepts.

What does “short” mean? Explained in one sentence

Simply put, shorting means betting that the market will fall. A more professional explanation is: short traders expect the price of an asset to decline. They profit by borrowing the asset, selling it immediately, waiting for the price to drop, then buying it back at a lower price and returning it.

For example: if you think Bitcoin will drop from $61,000 to $59,000, you can borrow 1 Bitcoin from the trading platform, sell it immediately at the current market price. When the price drops, you buy back the same Bitcoin at $59,000 and return it to the platform. The difference of $2,000 (minus borrowing fees) is your profit.

This concept is different from the everyday idea of “sell first, buy later,” so many beginners find it confusing. But the core logic is: you believe something will become cheaper, so you sell first and buy later.

Long vs Short | The fundamental difference between two trading approaches

Counter to shorting is long, which represents the completely opposite trading mindset. Long traders believe the market will rise. They buy assets directly, waiting for the price to increase before selling for a profit.

For example, with a token worth $100:

• Long approach: buy now, sell when it reaches $150, earning a $50 profit
• Short approach: borrow the token now, sell it, wait until it drops to $50, then buy back, earning a $50 profit

Both methods can make money; the key difference lies in the direction of judgment. Going long is more intuitive because buying assets aligns with everyday habits. But shorting requires you to adapt to the reverse thinking of “sell first, buy later.”

It’s important to note that executing short positions is more complex because it depends on the platform’s lending mechanisms. Additionally, markets tend to fall faster and are harder to predict than rise, which increases the risks of short trading.

Who is going long? Who is shorting? Classification of market participants

Based on traders’ positions, market participants are divided into two categories:

“Longs” (bull market participants) are traders optimistic about the market. They believe asset values will increase, so they buy in large quantities, boosting demand and pushing prices higher. The term “long” comes from a metaphor: a bull thrusts its horns upward, symbolizing upward momentum.

“Shorts” (bear market participants) are those expecting prices to fall. They profit by selling assets, which can influence the asset’s value. The name comes from the bear’s characteristic: a bear swipes downward with its claws, representing downward pressure.

When the bullish forces dominate, the market shows a bull trend, with prices generally rising. When bearish forces dominate, the market shows a bear trend, with prices generally falling. That’s why you often hear phrases like “entering a bull market” or “a bear market is coming.”

How does short trading work in practice?

In actual trading, the entire process of shorting is handled automatically by the platform “behind the scenes,” taking only a few seconds. From the user’s perspective, you just need to click a few buttons to open and close positions.

But understanding the underlying mechanism is important:

1. Open a short position: borrow assets from the platform (e.g., 1 Bitcoin)
2. Sell immediately: sell the borrowed assets at the current market price
3. Wait for decline: monitor market price movements closely
4. Buy back and return: when the price drops to your target, buy back the same amount of assets
5. Settle profit: return the bought-back assets to the platform; the difference minus fees is your profit

The entire process may seem complex, but trading platforms handle all technical details automatically. Your main task is to make correct price judgments and manage risks.

Hedging strategies | How to use shorting for defense

Hedging is a risk management method in trading, and long and short positions can be combined to achieve hedging.

Suppose you’ve already bought 2 Bitcoins (a long position), but you’re unsure if an event might suddenly cause the price to drop. To protect your profits, you can simultaneously establish a short position of 1 Bitcoin. This way, if the market rises, the long position gains; if it falls, the short position offsets some losses.

Let’s illustrate with specific numbers:

Scenario 1: Price rises (from $30,000 to $40,000)

• Long position profit: (2 - 1) × ($40,000 - $30,000) = $10,000
• Net profit: $10,000

Scenario 2: Price drops (from $30,000 to $25,000)

• Long position loss: (2 - 1) × ($25,000 - $30,000) = -$5,000
• Net loss: -$5,000

This hedging approach reduces your worst-case loss from $10,000 to $5,000. However, it also involves hidden costs: paying fees for two trades, and when the market rises, your gains are limited to half. A common mistake among beginners is opening two opposite positions of the same size, which cancels out all gains and only incurs fees.

Futures and shorting | Advanced trading tools

Futures are derivative instruments that allow you to profit from price movements without owning the actual asset. In the crypto industry, the most common are perpetual contracts and cash-settled contracts.

Perpetual contracts have no expiration date, allowing you to hold or close positions at will.

Cash-settled contracts mean you don’t receive the actual asset, only the difference in value between opening and closing positions (denominated in a currency).

Using futures to open short positions is very convenient because you don’t need to borrow actual assets first. You just place a sell order for a futures contract, immediately establishing a short position, and wait for the price to fall before closing the position at a profit.

Note that to maintain futures positions, traders need to pay financing rates every few hours—these are the costs arising from the difference between spot and futures market asset values. When the market is strongly bullish, short sellers pay higher fees; when bearish, the costs are lower.

Liquidation risk | The biggest threat to short traders

Liquidation is a concept that short traders must understand. It refers to the forced closing of your position when your collateral (margin) is insufficient to support the current position.

This usually happens when:

1. Asset prices fluctuate sharply
2. Your margin can no longer sustain the risk of the position
3. The platform sends a margin call (requiring you to deposit more funds)
4. If you fail to add funds within the specified time, your position is automatically liquidated

For example, if you open a short position worth $10,000 with $100 margin (100x leverage), a 1% market increase can wipe out your margin, leading to liquidation.

How to avoid liquidation:

• Use reasonable leverage (beginners should not exceed 10x)
• Regularly check your margin level
• Set stop-loss orders to close positions timely
• Avoid greed and aim for realistic profits

Pros and cons of short trading | A comprehensive assessment

Advantages

• Can profit in bear markets, not just passively wait
• Can hedge long positions, managing overall risk
• Offers more flexibility in trading strategies

Disadvantages

• More complex logic, easy for beginners to misunderstand
• Price drops tend to be faster and more violent than rises, hard to control
• Using leverage can rapidly amplify losses
• Requires paying borrowing fees and financing rates
• Liquidation risk is higher, especially during extreme market volatility

Many traders use leverage (borrowing funds) to maximize gains. But leverage is a double-edged sword: it can magnify profits but also losses. When trading short with borrowed funds, you must stay vigilant, as adverse price movements can lead to rapid liquidation.

Summary | The essence and meaning of short trading

In summary, shorting means expecting the price to fall and profiting from it. It is the opposite of long trading, providing traders with opportunities to profit in various market conditions.

Depending on your price forecast, you can choose long (bullish) or short (bearish) positions. Using tools like futures and hedging makes short trading more flexible and risk management possible.

But always remember: short trading is not risk-free. It requires deeper market understanding, disciplined risk management, and full awareness of liquidation risks. Only when you truly understand the meaning and operation of shorting can you safely apply it in the crypto trading market.

For beginners, it is recommended to start with simple long trades, gradually gaining experience before attempting short positions. Also, whether going long or short, always set stop-loss orders and manage risks carefully, because protecting your capital is the top priority in trading.