Short

In crypto, 'short' refers to a trading strategy where an investor sells a cryptocurrency that they do not own with the intention of buying it back at a lower price in the future. This is done in anticipation of the cryptocurrency's value decreasing, allowing the investor to profit from the price difference.

Example:

Let's say an investor believes that the price of Bitcoin (BTC) is going to decrease in the near future. They decide to short BTC by borrowing 1 BTC from a broker and immediately selling it at the current market price of $50,000 per BTC.

Case 1: If the price of BTC drops to $45,000 per BTC as the investor predicted, they can then buy back 1 BTC at this lower price and return it to the broker. The investor's profit would be the difference between the selling price ($50,000) and the buying price ($45,000), which is $5,000.

Case 2: However, if the price of BTC increases instead, reaching $55,000 per BTC, the investor would still need to buy back 1 BTC to return it to the broker. But now, they would have to buy it at the higher price of $55,000. In this case, the investor incurs a loss of $5,000, as they sold at $50,000 and bought back at $55,000.

Shorting can be risky because there is theoretically no limit to how high the price of a cryptocurrency can rise, resulting in potentially unlimited losses for the short seller. Therefore, shorting should be approached with caution and requires careful risk management.