When I am unsure whether a coin/stock will go down or up I usually take a small short position on my own investment to protect it.

Let’s say you own 500 ETH that just went up to $40. The market is stable for now and you have no idea what will happen next. You don’t want to sell any of the 500 ETH because you think it will go up more but you also would hate it if it would crash back to $20.

In these situations, you can consider shorting your own investment.

Shorting works pretty simply.

You lend 100 ETH (I do this on the Kraken exchange) and pay a small fee. You sell the ETH instantly for $40 each. If the price of the ETH goes down to $25 you buy the ETH back and you return the ETH to the lender. The $15 price difference is your profit. In this case 100x$15 = $1500,-

If the price goes up to $65 you are forced to buy back the ETH for a higher price. Your loss is 100x$25 = $2500,-

Why I like going short

There are times you just don’t want to sell your assets. You think the markets will probably go up but you are not 100% sure. A small short position gives me peace of mind. If the markets crash at least I’ll have some extra profits to cover my losses. And if the market goes up further I still make a profit but just a little less.

example
I took a small short position on 20 ETH this morning for €40, It's 20 euro in the minus because ETH went up to €41.

Naked short

Because I own the underlying assets that I short, I never have to worry about not being able to pay up in case the price skyrockets. If need be I can just sell some ETH to cover the losses on the short position.

naked

Naked short is how people lose their house. It means the exact same thing as described above the difference is you don’t own the underlying asset.

Example

You don’t own ETH. You lend 100 ETH and sell them at $50 each because you think the price will go down. The opposite happens instead and the price goes up to $700. You must now cover the loss. 100x $650 = $65,000.

But because you don’t own any ETH yourself you can’t sell your own ETH to cover the loss. It must come from your own pocket. This is how people get wrecked.

Never go naked short if you don’t know what you are doing. Your losses can be huge!

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Naked shorts are a little different to what you described, and are generally not possible in crypto. They are where you "sell" an asset you don't even have! You haven't borrowed it, and you don't own any. When it comes to settlement time, the people on the other side of the bargain often get screwed, as the settlement fails. It only happens because of a flaw in the settlement model for equities in the US, Patrick Byrne's T-0 blockchain settlement system was designed to eliminate naked shorts in the stock market.

It's also illegal, but very hard to prove that it happened in a specific case. It can be proven statistically that it happens, but that's all.

Awesome comment. It added to my knowledge about shorting. The way you describe it is even worse. Learning every day. Thanks!

so that's what the whole lending thing is about. huh. That's quite a gamble.

It is if you don't have the underlying asset. Bbbrrr...

all investing is a gamble. You betting on it going up. Maybe it, hopefully it will.

This is really useful info, thanks! Do you happen to know if it is possible to do this with STEEM?

Thank you. I don't know if this is possible with STEEM. As far as I know not on the exchanges I use.

You can do that. Or you can do what I usually do: HODL!

You can still do that with a short position! :)

Yes but following your strategy I would (temporarily) hodl less. ;-)

That is indeed a good strategy. Many billion dollar funds do this.

It works for me too!

I want to know how this is different from selling a portion of the stocks

Why I like to go short on my own investments to protect them.steemCreated with Sketch.

Shorting works pretty simply.

Why I like going short

Naked short

Example

Why I like to go short on my own investments to protect them.