Short purchases and sales are generally restricted to experienced investors as they carry a significant amount of risk.
What is Shorting
A short position is when an investor sells a security, which the investor anticipates that it will drop in value in the near-future. If the price drops, the investor buys the security back at a lower price, and in the end makes a profit. If the price increases, the investor is left to purchase the stock at a higher price than it was sold, which results in a financial loss.
Shorting, or selling short, allows professional traders to profit regardless of whether the market is moving up or down, which is why professional traders usually only care that the market is moving, not which direction it is moving.
Launch of sETH
Thanks to the team of dYdX , short tokens are now a reality. dYdX is a platform which allows for the open source protocols of decentralized margin trading and derivatives. sETH is the first short token available for decentralized trading. The new token must be purchased with the DAI Stablecoin, and can allow for increased risk management in a bear market. The value of sETH shares an inverse relationship with ETH: when ETH goes down, sETH goes up— and vice versa. A stable coin – tied to the US dollar – is used to fund, buy, and sell the short token.
A Short Token is a short position wrapped in an Ethereum Token. That means you can gain exposure by merely holding one. On Radar Relay, you can trade Short Tokens directly from your wallet, the same as any other ERC20 token.
There are handful of ways to get assets back from a Short Token. You can either sell on “Radar” or wait for your tokens to be automatically closed and withdraw your payout on Expo.
As you can trade short tokens directly from your wallet there is no headache of dealing with lenders, trusting exchanges, or fumbling for orders at close. As the role of third parties is minimized, short tokens offer a much better perspective as compared to the traditional financial securities.
There has been a lot of talk about security tokens in the market nowadays. Many investors and firms are coming forward to embrace the benefits offered by security tokens. Many enthusiasts term Security Token Offerings (STO) as the future of traditional IPOs. Though, the security token industry is at a pretty nascent stage, it is still unclear what the future will bring. And the arrival of short tokens at this time might give the industry a much needed boost. Will the short tokens be embraced and used to write a new era for security tokens or the market will find a better mode to sustain. It will be an interesting thing to see.
Do you guys think short tokens will play a crucial role for the development of security token industry? Let us know in the comments below.