If you wish to buy a Bitcoin, for instance, then your account will grow in value as Bitcoin’s price increases. If Bitcoin price decreases, then your account loses value accordingly. Apart from a standard trade (purchase), hi5markets platform allows you to open a position that will increase in value as the cryptocurrency decreases in price. This is referred to as selling or going short, as opposed to buying or going long.
Say Ethereum market price is $314.7. You think that the Ethereum price will go up, so you buy 200 of ETH’s at $314.7. This is equal to the position value of $62,940.
Because hi5markets offers leveraged trading, you don’t need to put up the full value of this trade. Instead, you only need to cover the margin, which equals to 1% of a total position size, or $629.40.
If your prediction is correct and ETH price climbs, you may decide to fix a profit. Ethereum price is $354.2 and you close your position.
To calculate your profit, you need to multiply the difference between the closing price and the opening price of your position by its size.
354.2-314.7=39.5, which you multiply by 200 and get a profit of $7,900 because you had a “long” position.
The Bitcoin is trading around $7,400. You anticipate the upcoming negative news about cryptocurrency market, which will negatively impact the price of BTC, so you decide to sell ten Bitcoins at $7,400 for a total short position of $74,000 in value.
Bitcoin has a margin requirement of 1% (1:100 leverage) so you need to deposit $74,000x1%=$740 as margin collateral.
The announcement is a disappointing one, and the Bitcoin drops to $7,354. You’re ready to secure your profit, so you buy back 10 BTC at $7,354
Because this is a short position, you deduct the closing price ($7,354) from the opening price ($7,400) of your position to calculate profit, before multiplying by its size of 10.
7,400-7,354=46, which you multiply by 10 and get a profit of $460 because you had a “short” position.
To calculate the profit or loss earned from a long/short trade, you multiply the size of your position by the difference in points between the price when you opened it and when you closed it. With both long and short trades, profits and losses will be realized once the position is closed.
You can also use leverage to get exposure to a much larger position than with a standard trade (for both long and short), if you are confident about the direction of the market.