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Suppose I have US Dollars on Kraken and no BTC. And suppose I expect the Bitcoin price to drop a bit (which I don't, but suppose) so I would want to speculate and take a short position.

Is this possible at all, or do I first need to have BTC in my account, in order to 'short sell' them?

It feels kind of counter-intuitive to first buy BTC to then immediately sell (short) them.

Suppose I don't want a higher leverage, i.e. I just want to short "1x" so to speak. So the price going down by 7% would mean 7% profit (minus trading fees). Am I right in thinking I should then first buy BTC, and then sell that with 2x leverage?

And similarly if I'd want to short with 3x leverage. But have no BTC yet. Should I then first buy BTC (through a normal order, not margin) and then margin sell it with 4x leverage?

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  • It seems to me it is only logical you first need to "own" a commodity before you can short it. Similar to how people borrow stocks to short, no?
    – Rutger Versteegden
    Mar 17, 2020 at 15:22
  • You actually don't need BTC to short BTC. You just need some form of Fiat i.e. USD, EUR, etc, as collateral. In a short market, you would sell your asset on the spot market, and then open a margin short position. So you would have no BTC and all Fiat. When you do this, you're borrowing someone else's (or the exchanges) BTC. That means you need to pay them back. When you're ready to "close the position" i.e. pay them back, you buy the exact same amount of BTC at the cheaper price, thereby repaying the loan, and keep the leftover Fiat as your benefit. That's all there is to it.
    – TetraDev
    Jul 28, 2020 at 22:57

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You have to get money into the exchange to purchase and secure your position somehow. BTC is probably an easy way to do it but you could also do it with EUR or USD. You will need BTC to close the position but since you're going to be shorting BTC, you won't want to hold BTC while the position is open, so you'll be holding some form of fiat instead.

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  • Thanks, I understand I will need to keep some collateral to secure the position. And you're right, if I'd be shorting BTC I wouldn't want to hold BTC at the same time. Can you give an example? Suppose the current BTC price is $6000, and in my account I have $3000 (and no BTC). Suppose I want to use my entire $3K to short Bitcoin, at 5x leverage. What do I do exactly, i.e. what details do I fill in at the order page? Very much appreciated, I'm trying to wrap my head around this and especially how it's handled in Kraken.
    – Joey
    Mar 17, 2020 at 6:39
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    This article might be helpful: steemit.com/trading/@cryptoplayhouse/huoe1dbx
    – David Schwartz
    Mar 17, 2020 at 16:50

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