If you have conviction that Dogecoin’s price will drop and you are looking for a way to make a profit then you need to short DOGE. But how do you go about shorting Dogecoin? There is more than one way. In this article, I will walk you through how to short Dogecoin and what you need to be aware of.
Major disclaimer: Most people tend to lose money when shorting. When shorting you can make up to 100% but you can also wipe out all your savings. So you need to be extra careful.
The Top 7 Different Ways to Short Dogecoin
Cryptocurrency exchange platforms have become just as sophisticated as the stock market when it comes to the different ways of trading cryptocurrencies. Shorting cryptocurrency is one of these ways.
There are 7 different ways by which you can short Dogecoin meme cryptocurrency on the crypto exchange market. These are:
- Margin trading
- Options Contracts
- Futures contracts
- Inverse ETFs
- Contracts for Difference (CFD)
Short-selling is one of the most popular options for shorting meme cryptocurrency on the bear markets. In this trading strategy, you wager on the price of Dogecoin expecting it to make a deep slump.
To short-sell your meme coin, do the following:
- Carry out own research to find out if the Dogecoin price has the potential deep-slump very soon. Borrow your preferred amount of Doge when the price of Dogecoin is rallying towards its highest price.
- Instantly sell your meme coin at the current market price after borrowing
- Keenly watch out for the downward trend to put a market order. Buy back your Doge at a lower price just immediately after the trough.
- Immediately after buying, return the amount of Doge that you borrowed to the broker.
Thus, while the amount of Doge in the entire transaction remains the same, it was borrowed and sold at a higher price and then bought back and returned at a lower price. Thus, you profit from the price difference after deducting the trading fees.
2. Margin trading
Margin trading is a high-risk form of trading whereby one borrows funds, either in fiat currencies or cryptocurrencies, and then uses the funds to buy Dogecoins.
To achieve this, one has to open a margin trading account with a crypto exchange broker.
In the context of shorting Dogecoin, a margin is a collateral value deposited in the margin account to cover the credit risk involved in buying a meme coin. This margin plus the top-up advanced by the crypto exchange broker makes up the sum of the issued and payable loan.
Let’s say you deposit a 25% (e.g., $250) margin and the crypto exchange tops it up with 75% (e.g., $750) to provide the 100% (e.g., $1,000) required to purchase a given amount of Doge. The Doge amount then becomes collateral that you possess but the brokerage retains the ownership rights until the loan is repaid. In this example, you have a 3x leverage on your margin. The ‘x’ denotes the degree of leverage.
Isolated position versus cross position; which one is the better option?
If you are holding institutional money in a margin trading account, or huge amounts of Dogecoin, it is advisable to have a diversified margin portfolio. To achieve this, you need to take both an isolated position and a cross position.
Taking an isolated position means that you allocate your margin to a single position. Thus, your margin cannot be used on any other position. This lowers the risk to your portfolio since when one position collapses, your other positions aren’t affected.
On the contrary, taking a cross position means that your margin can be used across positions. While this increases your chances of netting higher gains, it increases your portfolio risk.
3. Short Option Contracts
A short option contract comes in two variants – a put option and a call option.
A Dogecoin call option gives the Doge buyer the right to buy Dogecoin at a certain future date at a predetermined Dogecoin price. However, this right does not obligate the buyer.
On the other hand, a Dogecoin put option gives the Doge seller the right to sell Dogecoin on a certain future date at a predetermined Dogecoin price. However, this right does not obligate the seller.
A call option is a bullish buyer’s financial instrument while a put option is a bearish seller’s financial instrument. Like other financial instruments, these options can be bought and sold on the crypto markets.
4. Futures contracts
A Dogecoin futures contract (or simply Dogecoin futures) is a contract to sell or buy a specific amount of Doge at a predetermined future price.
The main aim of Dogecoin futures is to fix a given price of Dogecoin into the foreseeable future to hedge it against future Dogecoin price volatilities. In addition, counterparty risks are prevented, since Dogecoin futures are issued by the trading platform.
Dogecoin futures are tradable on the futures markets as financial instruments just the same way equity stocks are traded on the stock market. Many crypto exchange platforms have a futures trade segment where crypto traders can short Dogecoin futures. The underlying asset for this type of futures trade is Dogecoin.
When shorting Doge, using a perpetual futures contract is the best option. On most trading platforms the DOGE/USDT perpetual option is often used, whereby the USDT becomes the base currency. You can use the USD Chart to determine the USD price and match it against the Dogecoin’s price obtained from evaluating simple trend lines on Doge’s performance.
Once the USDT amount is determined, you can then use a credit card or acceptable fiat payment method to load USD to your holding account and then convert it to USDT. You can also make requisite deposits into a futures wallet to cater to the maintenance margin.
The Dogecoin community loves using memes as a funny way of expressing future predictions. The bigger fun is when these predictions are turned into financial instruments tradeable on the markets using meme cryptocurrency.
Yes, with fun, unknown future events, such as the outcome of a contest between two national teams, can be turned into a contract between fans and this contract becomes a financial instrument traded just like shares on a stock market. This is just betting baked into a trade exchange. Unlike ordinary betting, this prediction is not about the outcome of the event as such, but the impact of that outcome on the price of Dogecoin. So, the betting is on how Dogecoin’s price will behave relative to the outcome.
There is a striking similarity between the predictions market and futures market. Both are about the future. However, the difference is that predictions contracts are about the occurrence of an event while futures contracts are about the price of an underlying asset.
6. Inverse ETFs
Inverse ETFs are ETFs on a downward trend – characteristic of bear markets. ETFs are about an index rather than a single asset. For example, S&P 500. Thus, it has an inbuilt portfolio mechanism. Inverse ETFs are ideal for small-scale retail bears who do not have enough money to create their own diversified portfolio.
A Doge bear can take a short position on Doge-priced inverse ETFs floated on the bear markets.
7. Contracts for Difference (CFD)
A Dogecoin CFD is a preliminary contract whereby the Doge buyer consents to compensate the Doge seller the difference in Dogecoin’s current price and its price at the contract time in the future. This difference in the price of Dogecoin is settled in cash (or stablecoins such as USDT).
This Doge CFD is tradeable on the CFD markets as a derivative like any other financial instrument. Dogecoin CFDs provide investors with an opportunity to gain from Dogecoin’s price movement without necessarily having to own or buy the meme coin.
The Dogecoin Shorting Strategy
A trading strategy is simply a plan of action that enables a trader to make a beneficial decision.
The Strategic steps:
(a) Do your own research and analysis
Researching and analyzing an investment option before committing to it is what a shrewd investor does. Even if you have no skills or time to do your own research and analysis, you can hire the services of a competent financial analyst.
Fundamental analysis and technical analysis are the two prominent methods of analyzing investment options.
The purpose of fundamental analysis is to ascertain the intrinsic value of an underlying asset. On the other hand, the main purpose of technical analysis is to determine the underlying characteristics of a given asset based on its historical price movements on the price chart. These underlying characteristics can then be used to forecast the asset’s future price performance. Technical indicators are used to detect these characteristics in forecasting the future price of a cryptocurrency.
Since Dogecoin is a meme cryptocurrency whose face value is based on the popular meme of a Shiba Inu dog, it has no tangible intrinsic value of its own. Hence, fundamental analysis is not worth the effort. As such, technical analysis is the best option. Furthermore, bear markets are interested in short-term gains, not long-term gains that would necessitate fundamental analysis.
(b) Open a short position
Based on your outcome of research and analysis, you can devise an appropriate trading strategy. Once you have this strategy in place, you are now able to open a short position.
(c) Cover your position
Prudence dictates that you cover your position against possible risks. Bear markets have tools to cover your short position. These include buy-stop orders. Take advantage of them to protect your profit from high risk.
(d) Optimally reap the gains
Timing is of utmost necessity. Don’t delay harvesting your profits in due time. Otherwise, they may evaporate into losses.
Do you feel hot enough to toss some memes to the wagging bear? The cold hardware wallets are not the best place for this funny moment. Let your meme coin be ready to launch from hot wallets. This way, you can quickly short your Doge for more memes and fill the gains in your desired crypto wallets. You’ve now learned how to short dogecoin. Take advantage of the above Top 7 different ways to short dogecoin and let your digital wallet bulge with more memes.
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