Shorting fiat

With great risk comes great reward.

That's a pretty common saying that can apply to a lot of things. Yesterday as the market was bleeding red and everyone and their grandmas were panicking and wondering how low it will go and the newbies asking if this is the crash that everyone has been warning about. Looking at your mainstream media... I decided to try out an exchange that I used to use a lot in the past, Kraken.com.

I had heard recently that it had been lagging like crazy on there for a very long time, making orders almost impossible to be executed and most customers were getting really tired of using it. I was surprised it was working somewhat okay when I logged on after a long time not having used it. I decided to send some funds over and try my hand at some margin trading which I don't really recommend anyone to do, I don't trade that often myself either but I just had this gut feeling yesterday that I wanted to act on.

This is a screenshot from cryptowat.ch. The price had recently hit 10,700. While some were arguing that this was not the end of the correction and that they weren't surprised if it would drop under $8k, I decided to give it a go and set up a few orders.

The reason I chose this exchange and not other popular exchanges such as Poloniex that offer margin trading is that they only offer margin trading against other cryptocurrencies, not fiat a.k.a. cash. Considering over the last month most of cryptos have been moving at the same time with Bitcoin instead of lagging behind like they did when Bitcoin was first seeing huge daily gains, this made trading BTC vs other Crypto less of an option for me. We all know that there won't be a short term rise of $ or € though so that made it a lot safer in my eyes to bet against that and that Bitcoin and Ethereum would recover from this "bottom".

If you are not aware of what margin trading is, it's basically borrowing so you can trade with a higher value than your own coins are worth. There is a lot more risk involved than the usual trading, if you buy BTC at $10k and it drops down to $8k, you would've lost 20% value, but you'd still have your BTC and would just need to wait for the next rise - but in margin you pay a fee for the loan and if you are trading with 5x more coins than you own, it means that if the price were to go down with 20% it would liquidate you, force sell your loan to pay it back and eat 80% of your value. The upside is that if Bitcoin goes up by 20% instead you'd profit as if you had 5x more of it.

The good thing about kraken is that you don't even need to exchange your coin for fiat to be able to short it, any coin you have in your balance can act as any other coin but that means that if you for example are holding 1 Bitcoin and your margin trade goes down by 20% you have a risk of being liquidated before it hits 20% exactly as your Bitcoin isn't worth $10k anymore which you are trading with when you opened the trade.

Anyway, so what I did was send some SBD and Steem via @blocktrades as Ethereum to the exchange, Ethereum because of the fast transaction time and low cost, would be nice if Kraken added Steem to their exchange already but I'll gladly use Ether compared to Bitcoin for now. Maybe @blocktrades could consider adding Bitcoin Cash soon. :)

As the coins arrived I waited for a small dip in the current chart and opened up a few trades. Knowing most of the coins would move up if Bitcoin did, I decided to go for some that you could margin trade with on Kraken which were XMR, REP, ETH and BTC. XMR and REP were only possible to borrow up to 2x with which I didn't mind but would've gone for 3x-5x if it was possible as I was feeling a bit adventurous and confident that they would only be going up from there on out. Then I went for Ethereum and Bitcoin which allowed up to 5x margin. After a few hours I had already profited a bit from the current trades so decided to buy the next dips too at a higher price while trying to refrain from putting my margin level under 130% (if it were to go down to 80% it would liquidate my trades and I'd lose 80% of the balance due to most trades being 5x margin, unless I sent more funds to my Kraken account before that happened to save it).

I stayed up a bit longer checking the charts and the movements and at some point I decided to put on a few alarms on my Bitcoin Checker app that would notify and wake me up from my sleep if anything disastrous was happening to the prices of BTC and ETH. Then I felt confident enough to go to sleep and as I woke up in the morning I was happy realizing none of the alarms had gone off - or at least that I could remember.

I opened up my account and saw this sea of green.

As happy as I was about the profit and knowing I can close the trades now and take the profit back onto Steem, the realization that Steem and SBD had also gone up a lot since yesterday meaning that if I had just held onto them instead of trading them into Ethereum and margin trading with it, I would've probably gained a lot of profits anyway and felt a lot safer than risking it this way.

While this was a fun experience and it happened to go in the right direction this time, I can safely tell others that the best way would still be to just hodl your coins in a very safe place like your Steem wallet. :)

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