Traders can make money from falling markets by shorting.
In total, the trader obtained a return of 2,200%.
After the lawsuit filed by the United States Securities and Exchange Commission (SEC) against Coinbase, shares of the cryptocurrency giant fell 25%. As a result of this drop, one trader made a total profit of $2.5 million.
According to records from the financial services platform Unusual Whales, the trader invested a total of USD 107,000 in COIN (Coinbase share), which generated a return of 2,200%.
The trader opened short positions last Monday at an average price of USD 61.77 per share. Usually, short positions have expiration periods, and in this case, the shares would expire on June 9 if the short sale was not executed. However, on Tuesday, June 6, the trader closed all his positions following the fall in Coinbase shares.
Unusual Whales records that this trader would not be the only one who opened short positions that Monday, as several traders also opened positions against Coinbase shares.
Making money on dips: short positions
In financial markets, including cryptocurrencies, you not only make money by trading up the market, but it is also possible to obtain benefits in the falls through the short positions. As explained by the Criptopedia (educational section of CriptoNoticias) these consist of investing against the market, that is, waiting for the shares to decrease in value.
The operation of short positions are based on loans, where a trader lends an asset in exchange for a commission and for a specified period of time. The investor who receives the loan immediately sells the received asset, hoping that its value will decrease, since he only needs to repay the loan (in the form of the received asset) plus the commission. If the asset goes down, the investor repurchases the same number of shares (or cryptocurrencies) at a lower price, you repay the loan, and the profit is calculated as the difference between the total amount of the sale and the shares returned. This entire process happens automatically.
Thanks to leveraged systems, investors like the trader mentioned in this article can turn thousands of dollars into millions. However, this approach carries a considerable risk, since if the actions do not go in the expected direction, the user risks losing all his money.