Short selling (short position)

In classic short selling, a trader borrows an asset, sells it at today's price and later buys it back to repay the loan. If the price has dropped, the difference is profit; if it has risen, it is a loss. In crypto, most short positions are opened through futures or perpetual contracts, which give the same exposure without borrowing coins directly.

Short sellers contribute to price discovery and hedging: a miner or a fund holding bitcoin can short futures to protect against a fall. When many traders are short and the price rises, forced buybacks can feed a short squeeze, and exchanges report short liquidations after such moves. Margin platforms and lending protocols also allow traders to borrow tokens and sell them.

Losses on a short have no theoretical ceiling, because a price can keep rising, while gains are capped at the asset falling to zero. Leverage, funding payments and borrowing costs add to the risk, which is why stop-loss orders are common practice.