How do you short crypto?

The two common ways are opening a short on a perpetual futures contract, which requires only margin, or borrowing the coin on a spot margin account and selling it. Both require collateral and carry liquidation risk.

Is shorting with perps or spot margin cheaper?

It depends on current rates. A perp short receives funding when the rate is positive and pays it when negative, while a spot margin short always pays interest on the borrowed coin. Compare both as annualized costs before choosing.

Can you lose more than you invest when shorting?

A short's potential loss has no fixed ceiling because the price can keep rising. In practice, exchanges liquidate the position before losses exceed your collateral in most cases, so the collateral is what you can lose.

What is a short squeeze?

A short squeeze is a fast price rise that forces short sellers to buy back to close or be liquidated. Their buying pushes the price higher still, which can trigger more liquidations.

What Is Short Selling in Crypto? Perps vs Spot Margin Shorts

Q: What is short selling in crypto?

Short selling is a trade that profits when the price falls. You either sell a borrowed coin and buy it back later at a lower price, or open a short position in a futures or perpetual contract.

Short selling is a trade that profits when an asset's price falls: you sell first at today's price and buy back later, ideally lower. In crypto, you can short in two main ways: by opening a short on a perpetual futures contract, or by borrowing the coin on a spot margin account and selling it. Both require collateral, and both can be liquidated if the price rises too far.

Key takeaways

A short profits when price falls and loses when it rises.
Short PnL = size × (entry price − exit price) for linear contracts and spot.
Perp shorts need only margin; they receive funding when rates are positive and pay when negative.
Spot margin shorts borrow the actual coin and pay interest for as long as the loan is open.
Losses on a short have no fixed ceiling, so liquidation and position sizing matter.
Shorts are the hedge leg in cash-and-carry and funding arbitrage trades.

How a short works

A normal (long) trade is buy low, sell high. A short reverses the order: sell high, buy low.

Short PnL = size × (entry price − exit price)

Example: you short 2 ETH at $3,000 and close at $2,700.

PnL = 2 × ($3,000 − $2,700) = +$600

If ETH instead rises to $3,300:

PnL = 2 × ($3,000 − $3,300) = −$600

For a long position, the formula is the standard linear PnL, size × (exit − entry). A short simply flips the sign.

Method 1: shorting with perpetual futures

A perpetual futures contract tracks a coin's price without expiring. Going short is as simple as selling the contract. Nothing is borrowed; you post margin as collateral, and the exchange tracks your unrealized PnL.

The ongoing cost or income is the funding rate:

Positive funding: longs pay shorts, so your short earns funding.
Negative funding: shorts pay longs, so your short pays funding.

Perp shorts are the most common way to short crypto because they are available on many coins, support leverage and need no loan management. On USDT-margined linear perpetuals, such as those on Binance and Bybit, PnL and margin are both in stablecoins, which keeps the math simple.

Method 2: borrowing spot on margin

On a spot margin trading account, you post collateral, borrow the coin itself, and sell it for stablecoins. Later you buy the coin back and repay the loan.

Steps:

Deposit collateral, for example USDT.
Borrow 2 ETH from the exchange.
Sell the 2 ETH at $3,000 for $6,000.
Later, buy 2 ETH back (at $2,700 if the trade works) for $5,400.
Repay the 2 ETH plus interest. Keep the $600 difference, minus interest and fees.

The cost here is borrow interest, which many exchanges charge hourly and which can change with demand. Borrow supply is limited; for popular shorts, the exchange may run out of coins to lend, or rates can rise sharply.

Perp short vs spot margin short compared

	Perpetual futures short	Spot margin short
What you do	Sell a contract	Borrow and sell the real coin
Ongoing cost	Funding (paid or received)	Borrow interest (always paid)
Availability	Wide, on many coins	Only coins the exchange lends
Liquidation reference	Usually mark price	Margin level of the account
Typical use	Directional shorts, hedging spot	Hedging perps, reverse cash-and-carry

Worked example: comparing the carry cost

Assume you short $30,000 of ETH for 7 days, with illustrative rates.

Perp short, funding at +0.01% per 8 hours:

Per payment: $30,000 × 0.0001 = $3.00 received
3 payments per day × 7 days = 21 payments
Funding income: 21 × $3.00 = +$63.00

Spot margin short, borrow rate of 5% per year:

Interest: $30,000 × 0.05 × 7 ÷ 365 = −$28.77

Under these assumptions, the perp short earns about $92 more than the spot short over the week. If funding turned negative, for example −0.02% per 8 hours, the perp short would pay 21 × $6.00 = $126, and the spot margin short would become the cheaper option. Always compare both as annualized rates. The funding interval converter helps when venues use different intervals.

Shorts in hedged strategies

Most arbitrage strategies include a short leg.

In a cash-and-carry trade, you buy spot and short the perp. The price exposure cancels and you collect positive funding.
In a reverse cash-and-carry, you short spot on margin and go long the perp to collect negative funding. The trade only works if the borrow interest is lower than the funding you receive.
In cross-exchange funding arbitrage, you short the perp on the exchange with higher funding and go long where it is lower.

Risks of short selling

Unlimited upside risk. A price can rise far more than 100%, while it can only fall to zero.
Short squeezes. Rapid rallies force shorts to buy back, which pushes the price higher and triggers more liquidations.
Rising carry costs. Funding can turn negative or borrow rates can spike while you hold.
Recall or borrow limits. Spot lenders and exchanges may limit or change borrowing terms.
Leverage. High leverage puts the liquidation price close to entry.

How ArbTide helps

The funding rates page shows where perp shorts are currently earning or paying funding. For hedged short trades, see the cash-and-carry and reverse cash-and-carry strategy pages.