What Is Short Selling, and How To Do It in Margin Trading?
Main Takeaways
Short selling allows traders to profit from declining prices by borrowing and selling an asset, then buying it back later at a lower price.
Leverage can amplify both gains and losses, making it essential to stay informed, track price movements, and exercise caution when shorting.
In this guide, we’ll explain how short selling works and walk you through the process of shorting on Binance Margin.
Imagine you spot a crypto asset that’s clearly overhyped: its price is soaring, but your analysis suggests that a crash is imminent. What if there was a way to benefit from this anticipated trend reversal? In fact, there is. Short selling allows you to take advantage of the potential downturn by profiting when an asset’s price drops.
What is Short Selling
Short selling is a strategy that allows traders to profit from falling prices. Instead of buying a token outright, a trader borrows it from an exchange and sells it at the current price, aiming to buy it back later at a lower price. If the price drops, the trader repurchases the token at a discount, returns it to the lender, and keeps the difference – minus fees and interest.
While shorting can be a useful tool in volatile markets, it carries significant risks. Since prices can rise indefinitely, potential losses are theoretically unlimited, making risk management crucial.
How to Short on Binance Margin?
Short selling on Binance Margin allows you to profit from falling prices by borrowing and selling an asset, then buying it back later at a lower price. Here’s how to do it.
Step 1: Transfer Funds
Move collateral into your Margin account. You can do this manually or enable Auto-Transfer, which automatically moves funds from your Spot account when you place an order.
Step 2: Borrow and Sell
Borrow the asset you want to short by either manually taking out a loan before placing a sell order or using Auto-Borrow, which streamlines the process by automatically borrowing and selling the asset when you place an order.
Step 3: Price Tracking and Risk Management
Track price movements and use risk management tools like Stop-Loss and Take-Profit to manage your risks.
Step 4: Buy Back and Repay
When the price drops, buy back the asset at a lower price and repay your loan (plus interest). To close your position, either do it manually or utilize auto-repay mode.
Closing manually
To close your short position manually, click on [Positions], then [Close Position]. Select the assets to repay your debt, and rank them in order of priority for repayment. Binance will sell them via market orders accordingly.
For more details, please refer to How to Use the Close Position and Repay Functions on Binance Margin.
Using Auto-Repay mode
If you prefer automation, use Auto-Repay mode by placing a buy order in [Repay]. The purchased amount will be used to pay your debt automatically. For example, if you buy BTC, it will first go toward repaying your BTC loan.
For more details, please refer to How to Use the Auto Borrow and Auto Repay.
Sizing Your Short Position
Before shorting in margin trading, it’s important to size your position based on your available funds and risk tolerance. In Binance Cross Margin, all assets in your margin account are pooled as collateral. While trading occurs at the pair level, positions are maintained at the token level. Hence, your maximum borrowable amount depends on your total collateral, chosen leverage, borrowed amount, and your VIP level.
Assuming：
A= Collateral Value Excluding Borrowing
B= Borrowed Amount
C= Outstanding Interest
For Cross Margin Classic 3X:
Max Borrow Amount = (A-0.5*B-0.5*C) / 0.5
For Cross Margin Classic 5X:
Max Borrow Amount = (A-0.25*B-0.25*C) / 0.25
For calculation of max borrow amount on Isolated Margin and Cross Margin Pro, please refer to Binance Isolated Margin Trading Guide and How to Calculate the Maximum Borrow Limit on Cross Margin Pro?.
Example
Suppose BTC is currently at 10,000 USDC, and you think the price will drop soon. You conclude that short selling BTC using Binance Margin is the most advantageous strategy in this scenario, and you calculate that you have enough collateral to borrow 2 BTC for that purpose. Here are the steps you will have to take to execute this trade.
1. Log in to your Binance account and go to [Trade] - [Margin].
2. Transfer 10,000 USDC to your Margin Wallet as collateral.
3. Go to the [Sell] tab and click [Cross 3x].
4. Select [Limit] order and click [Borrow] to place under the Auto-Borrow mode, then enter 10,000 next to USDC.
Enter the amount to sell next to ‘Total’, such as 2 BTC, and click [Margin Sell BTC].
5. After confirming the order, the system will use your 10,000 USDC as collateral and borrow 2 BTC. This means you'll be margin selling 2 BTC at 10,000 USDC each.
Suppose after 2 weeks, the market moves downwards in a favorable direction to your short position, and BTC is now at 7,000 USDC. Binance Margin offers you two options to close your short position:
Option 1: Manually Close Position
To do it manually, click [Close Position] next to your short BTC position. This feature lets you fully or partially exit a trade, as long as the position value is over 10 USDT or negative.
Choose the assets to repay your BTC debt, then rank them in order of priority for repayment. Binance will sell them via market orders accordingly.
For example, if you shorted 2 BTC at 20,000 USDC and later repurchased them for 14,000 USDC, your profit (excluding fees and interest) would be 6,000 USDC, a 60% gain.
Option 2: Use Auto-Repay mode
To close your short position automatically, place a buy order in Auto-Repay mode. The purchased amount will go directly toward repaying your debt.
Go to the [Buy] tab, select [Limit] order, then [Repay]. For example, if you set a buy order for 2 BTC at 7,000 USDC each, the system will automatically use the filled BTC to repay your debt.
Since you originally sold 2 BTC for 20,000 USDC, repurchasing them for 14,000 USDC results in a 6,000 USDC profit (excluding fees and interest), which is a 60% gain.
Final Thoughts
Short selling in margin trading can be a powerful way to profit from market downturns, but it comes with significant risks. Leverage can amplify gains, but without caution, it can just as easily magnify losses. Success hinges on sharp analysis, constant market tracking, and solid risk management.
Further Readings
Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial advice, nor is it intended to recommend the purchase of any specific product or service. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance is not liable for any losses you may incur. Not financial advice. For more information, see our Terms of Use and Risk Warning.