How to short crypto: Bitcoin, Ethereum & more

Learn how to short crypto on decentralized exchanges (DEXs) like Mango.

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Compared to conventional financial assets, crypto offers unique features, characteristics, and functionalities that distinguish it in several ways.

In this guide, we'll explore the world of cryptocurrencies and explain how to short crypto such as Bitcoin, Ethereum, and Solana on decentralized exchanges (DEXs) such as Mango.

Longing vs. shorting crypto

Longing and shorting are two fundamental concepts in trading and investing, representing opposing strategies that traders employ to profit from movements in the price of financial assets such as stocks, commodities, currencies, and cryptocurrencies.

Longing, also known as taking a long position or going long, refers to buying an asset with the expectation that its price will rise. When a trader goes long on an asset, they are betting on price appreciation over time. In crypto, long positions are typically initiated by purchasing the asset outright on centralized exchanges, decentralized exchanges like Mango, or entering into a perpetual futures contract. If the price of the asset increases as anticipated, the trader can sell the asset or the perpetual futures contract, realizing a profit.

Conversely, shorting, also known as taking a short position or going short, involves selling an asset the trader does not currently own with the expectation its price will decline. To initiate a short position, the trader borrows the asset from a crypto exchange, broker, or another holder and sells it on the market. The intention is to buy it back at a lower price and repay the loan later. If the price decreases as expected, the trader can repurchase it at a lower price, return it to the lender, and pocket the difference as profit. However, if the price rises instead, the trader may incur losses, as they will need to buy back the asset at a higher price than they initially sold it for. In crypto, the complexities of this process are abstracted away by centralized exchanges like Binance and decentralized exchanges like Mango — allowing traders to short crypto in a few clicks and with no intermediaries.

Simply put, longing and shorting give traders the flexibility to profit from both upward and downward price movements, allowing them to capitalise on opportunities in all market conditions.

Shorting crypto: risks

Direct short selling is considered to be extremely risky due to several inherent characteristics of the crypto market and the nature of short selling itself.

Mainly, the risk lies in the fact that the crypto market is known for its high volatility — with prices increasing or decreasing significantly within very short periods.

If the market moves against a short seller, they may face margin calls, requiring them to provide additional funds to maintain their position. If they fail to meet these margin requirements, their positions may be forcibly liquidated at a loss.

Having said that, shorting crypto by employing various strategies can mitigate risks and allow you to capitalize on market movements. Among these, hedging and delta-neutral strategies stand out for their effectiveness in managing exposure and seeking profits in bullish and bearish markets.

Shorting crypto: risk management strategies

Hedging strategy

Hedging is a risk management strategy used to offset potential losses in investments by taking an opposite position in a related asset.

Suppose you hold a significant amount of either native or locked Solana (SOL) and anticipate a short-term decline in its price. To hedge against this potential loss, you could short-sell Solana perpetual futures contracts equivalent to your SOL holdings.

As such, if the price of Solana falls, the profit from the short position could offset the loss in the value of your SOL holdings.

Delta-neutral strategy

A delta-neutral strategy is a more sophisticated approach that aims to construct a portfolio of positions with an overall delta value of zero.

For example, you could open a $500 long SOL-PERP position on Mango and a $500 short SOL-PERP position on a centralized exchange such as Binance. By doing so, you’re not affected by SOL’s price moments and can rake in funding rate profits.

The funding rate is a periodic payment between long and short positions in a perpetual futures contract. Its purpose is to align the perpetual futures price with the underlying asset's spot price.

How to short crypto on Mango

Perpetual futures (perps)

Perps are one way to long or short cryptos like Bitcoin, Ether, and Solana on Mango.

Perps are contracts with no expiration date, meaning they do not have a predetermined settlement date like traditional futures contracts. Instead, perps are designed to track the price of an underlying crypto in perpetuity.

They also offer traders the ability to use leverage, allowing them to take on larger positions with less capital. This means traders can amplify potential profits (and losses!) when trading perps.

Funding rates are an important component of perps to understand. They are used to keep the perp price in line with the spot price of the underlying asset. Funding rates can be positive or negative (depending on whether the perp price is higher or lower than the spot price). When positive, traders in a long position pay the funding rate to traders in short positions and vice versa.

Spot

You can also short crypto by leveraging the swap or trade features on Mango. Swapping on Mango lets you easily create pair trades where you short one asset and long another. This type of trade can be less risky as the crypto market is highly correlated. For example, let's say you think Solana will outperform Ethereum, you can swap ETH for SOL without owning ETH. This leaves you with a borrowed amount of ETH and a SOL balance (short ETH and long SOL). Now, if SOL appreciates more than ETH you make more on SOL appreciating than you lose on being short ETH. If the market goes down, you won't lose as much as you would if you were straight long because you'll profit from your ETH short.

It's important to keep track of the interest rates for borrowing. These are variable rates, displayed as an Annual Percentage Rate (APR) and charged continuously on your borrowed balance.

If you'd prefer to set limit orders you can short on the Mango orderbook. As with swap, you can sell an asset without owning it (provided you have collateral deposited on Mango). When your order is filled you'll have a borrowed amount of the asset you sold (shorted) and a positive balance of USDC.

Stay healthy

Shorting requires taking on margin which can lead to losses and liquidation. Mango represents your maintenance margin with an account health ratio. If your account health reaches 0% your account will be liquidated. Keep your account healthy by not taking on too much leverage.

Ready to learn how to short crypto? 

Follow these step-by-step guides to start trading (and shorting) crypto on Mango — Solana's premier decentralized exchange!

Shorting crypto via perpetual futures (perps)

1. Make sure you have some SOL in your wallet to cover account rent and transaction fees
2. Head over to app.mango.markets
3. Connect your Solana wallet in the top-right corner of your screen.
4. If it's your first time we'll guide you through creating and funding your account. It costs a small amount of SOL to create your Mango Account (this is the rent cost on the Solana blockchain). This is refunded in full if you close your account. You'll also need to deposit collateral like USDC, SOL, etc... to be able to trade perps.
5. Next, navigate to the menu bar on the left side of your screen, select "Trade" and then "Perp". 
6. You'll land on the SOL-PERP market. To change markets click the SOL-PERP dropdown above the candlestick chart on the left. Select the perpetual futures contract you'd like to trade. 
7. Now you can use the trade form to create your short trade. It's recommended to use limit orders as market orders can result in slippage and prices worse than you expect.
8. When you're happy with your order, submit it and sign the transaction prompts from your wallet – done!

Shorting crypto via spot trade

1. Make sure you have some SOL in your wallet to cover account rent and transaction fees
2. Head over to app.mango.markets
3. Connect your Solana wallet in the top-right corner of your screen.
4. If it's your first time we'll guide you through creating and funding your account. It costs a small amount of SOL to create your Mango Account (this is the rent cost on the Solana blockchain). This is refunded in full if you close your account. You'll also need to deposit collateral like USDC, SOL, etc... to be able to borrow spot assets to short.
5. Next, navigate to the menu bar on the left side of your screen, and select "Trade" and then "Spot". 
6. You'll land on the SOL/USDC market. To change markets click the SOL/USDC dropdown above the candlestick chart on the left. Select the spot pair you'd like to trade. 
7. Now you can use the trade form to create your short trade. You'll be borrowing the base asset (e.g. SOL/USDC the base is SOL) and longing the quote asset. It's recommended to use limit orders as market orders can result in slippage and prices worse than you expect.
8. After completing the order form, submit it and sign the transaction prompts from your wallet — you’re good to go!

Shorting crypto via Mango Swap

1. Make sure you have some SOL in your wallet to cover account rent and transaction fees
2. Head over to app.mango.markets
3. Connect your Solana wallet in the top-right corner of your screen.
4. If it's your first time we'll guide you through creating and funding your account. It costs a small amount of SOL to create your Mango Account (this is the rent cost on the Solana blockchain). This is refunded in full if you close your account. You'll also need to deposit collateral like USDC, SOL, etc... to be able to borrow spot assets to short.
5. Next, navigate to the menu bar on the left side of your screen, and select "Swap". 
6. Use the swap form to select the crypto you want to short (sell) and select the crypto you want to long (buy). For example, you could go short ETH (sell) and long SOL (buy).
7. As soon as you’re happy with the order form, click "Review Swap", complete the process, and sign the transaction prompts from your wallet – happy trading!

Disclaimer: This guide is strictly for educational purposes only and doesn’t constitute financial or legal advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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