TL;DR- Want to short crypto on FTX? FTX offers shorts on around 30 coins. But before you start YOLOing your hard-earned cash into margin trading, you should know the risk factors.
Note: If you’re an FTX.US user, you need at least $100,000 of assets in your account to enable margin trading. Not many crypto traders are going to meet the $100,000 threshold 🙂
You can make a short if you believe the crypto price will go down. Be careful, though! The more leverage you use, the quicker you’ll get wiped out. Not financial advice- but I only do leveraged trades and shorts with less than 1% of my overall asset portfolio.
Can you short cryptocurrency on FTX?
Yes! You can short cryptos on FTX and FTX.US with leverage up to 20x. You’ll first need to enable margin trading. Follow the tutorial below.
Keep in mind that shorting on FTX highly depends on where you live. Many countries have strict requirements for margin trading.
What’s shorting a cryptocurrency?
In brief, you’re betting that the cryptocurrency’s price will decrease. Let me illustrate the concept with a stock market example and a graphic.
Let’s say you and your friend Kevin are arguing whether the price of Facebook (Meta) stock is too high. It’s currently sitting at $180/share. Keven thinks it’s fairly valued at $180- you believe the stock is worth way less and think it should be more down in the $100 range. You accept this for a lot of reasons. The government will break up Facebook (Meta), Apple/Google will limit Facebook’s intrusive ads, and the company’s cash flows are shrinking (all true, by the way!)
You guys decide to act on your beliefs. Kevin lets you “borrow” 20 shares of Facebook stock. You turn around and sell the 20 shares at the market price of $180/share. A week later, Facebook’s share price has indeed fallen to $100/share. You repurchase 20 shares at this price and return them to Kevin, who let you borrow them. Since your initial sale was (20*$180 = $3,600) and you bought the shares back at (20*$100= $2,000) you cleaned up with a ($3,600-$2,000= $1,600) profit on the trade. It pays to be right! All you need to know to become a billionaire is to be able to predict the future perfectly. So easy! Now pretend that Kevin is FTX, and Facebook stock is Bitcoin. Or whatever coin you think is going down.
What is margin trading?
Now let’s say that you were sure that the price of Facebook stock would fall. You only have a limited amount of cash, but if an exchange lets you borrow some of their money to
gamble or invest with, you will use it so you can make a more significant profit.
That’s what margin trading is on crypto exchanges.
Usually, you’d be limited to spot trading. Spot trading is the classic ‘buy and sell’- you buy Ethereum at $1.7K and sell it at $2.3K, for Instance.
Margin trading is
gambling investing with other people’s money. Margin positions only require you to put up a certain amount of funds, while FTX provides the rest of the funds for the trade.
The funds you contribute to a leveraged trade are called the initial margin. If your leverage ratio is high, you only require a small amount for the initial margin.
Remember– cryptocurrency as an asset class is already 12-15x more volatile than stocks, so you’re playing with dynamite when using leverage. Using leverage in the crypto market is the definition of insanity. Margin trading requires more minor price fluctuations for you to get wiped out.
There are risk factors that are too great for many. Several credible resources have cited crypto is far too volatile for leveraged trades. I’ve lost my share in margin trading, too 🙂
How to short cryptocurrencies on FTX
Get spot margin trading enabled
Spot margin trading isn’t enabled by default. Hit the person icon in the top right of your screen and select settings from the drop-down. For some of you, you’ll need to select the gear icon. On your profile page, select margin from the left hand side menu.
On the middle right side, you’ll see a white button saying enable spot margin trading. Select the enable spot margin trading button. Note: FTX.US users must have $100,000 or the equivalent amount in their account to enable margin trading.
Enable your margin multiple
On the same screen, you’ll see the margin menu with different options for leverage multiples you can allow yourself to use. Not financial advice- but start with no leverage (or 1x). Crypto. Is. Insanely. Volatile. The future version of yourself will thank you.
Find a crypto to short sell
Use the search bar at the top of the page and type in a cryptocurrency you’d like to short- like ETH, for instance.
You’re brought to the trading interface screen. On the right side, you’ll see two options for ‘Buy ETH’ or ‘Sell ETH’. Select Sell ETH. It’s called short SELLING, after all!
For the order type drop-down, select market order for your trade to go through immediately. I won’t go into the specifics of the different types of orders here.
Place your trade
Underneath the red ‘Sell ETH’ icon, you’ll see the turquoise leverage meter. Click and drag the leverage meter to the desired position size.
Click the red margin sell icon at the bottom of the box and hit place order when it asks you to confirm.
Track your short
Once you’ve completed your order you can click the borrowed spot position tab at the bottom of the page.
When you short crypto with leverage, you will have hourly interest rates for the crypto FTX is lending you on your trade. On the borrowed spot position tab, you can see the borrow size, hourly borrow rate, and liquidation price. If the crypto reaches the liquidation price, you’re out of funds.
The money required from you using the leverage is called your initial margin fraction. On FTX, your required initial margin fraction is 10%; thus, the total account collateral value you put up for the trade is at least 10% of your total trade value.
Let’s say you use a 5x margin and put up $200 for a short Bitcoin position. Since you used 5x, FTX will place the order for 5x($200) = $1000. If the price of Bitcoin falls 10%, you will make $100, a 50% return on the initial investment of $200.
But what if your trade goes south? If the price of Bitcoin spiked 20% after you placed your short trade, your funds would be liquidated since you put up $200, FTX placed your order for $1,000 (5x margin), and the price fell 20% ($-200). Boom! Your money is gone. Evaporated.
FTX charges 0.07% on its trades, and interest on any borrowed funds. See the full fee schedule here.
Spot margin position borrowing
FTX will also let you borrow spot tokens simply by spending beyond your account balance. Let’s say you have $2,000 of funds and want to buy 2 Ethereum tokens, each trading at $1,900. You could put in a buy order for 2 ETH for a total of $3,800, and FTX would lend you the balance you don’t have.
Remember that FTX will charge you interest payments on the funds you didn’t have to buy those two ETH tokens ($3,800-$2,000 = $1,800). That $1,800 will be subject to an interest rate.
Will I owe FTX money if I lose on my trade?
No. FTX will liquidate your position before it goes so low that you owe. That is, they won’t require any extra money from you after they’ve taken all the money you put up for your trade.
FTX is one of the cheapest (fees) and safest crypto exchanges. The FTX exchange offers lower fees than Coinbase, Voyager, and several other crypto exchanges. You can also get a lower price trading on FTX spot markets than
Get lower rates by holding FTX tokens
FTX has a feature where fees are reduced if you hold xX amount of FTX token. This feature is useful if you’re a frequent day trader. Fees annoyingly add up over time. FTX
Enable two-factor authentication
People lose their crypto due to scams and hacks constantly. Do yourself a solid and set up two-factor authentication on your FTX account immediately.
Margin trading is not for the faint of heart. If we’re in a bear market, there’s no telling at any given moment whether a crypto’s price will rise or fall. If we’re in a bull market, it’s the same. Accept that no one knows what’s going to happen.
When a reporter asked billionaire JP Morgan whether the market would go up or down, he responded: “it will fluctuate.” And so it is with crypto. It’s going to do whatever it’s going to do.
In 2021 I got into margin trading and futures on KuCoin. I fell into the trap of watching hours of YouTube videos from cryptocurrency “experts” and “technical analysis.” Not financial advice, but you’re wasting your time watching those YouTube videos.
While there’s certainly merit to technical analysis in some cases, by and large, I was pretending to know what’s going on.
Whenever I placed levered bets on crypto, I couldn’t sleep, work, or think about anything else. The minor fluctuations in the market would have me staring at real-time charts of whatever coin I had a position in.
I lost some money (see the liquidation risk section above). I learned that I have less risk tolerance than initially thought. I like to have gains but also peace of mind. Crypto investing does not bring the latter, and margin trading does not bring peace of mind.
Stay safe out there!