Understanding The Difference Between Crypto Spot and Futures Trading
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Crypto trading is becoming more interesting every day as more means of trading are developed, just as we now have copy trading, spot and futures trading, and the rest of them. Now, most people prefer using AI for trading. However, as a crypto trader, spot trading and futures trading are what your artificial intelligence will always be used to trade for you, you should understand the difference between them.
Spot Trading
As you can see from the above screenshot, the spot trading interface of Binance Spot trading is simply the process whereby traders or investors can buy and sell cryptocurrencies such as STEEM, BTC, and ETH for instant delivery. Spot trading is one of the easiest ways to buy and sell cryptocurrencies using your fiat currency, which acts as an intermediary between sellers and buyers to bid on and ask for a cryptocurrency.
In spot trading, once a bid is met, the exchange will help you facilitate the trade automatically. However, spot trading has some features that allow traders to buy cryptocurrencies at their price. In spot trading, if you don't want to buy or sell crypto at the current market price, you can make use of limit orders, which allow you to set your price.
screenshot gotten from binance
For example, if you want to buy STEEM with your local currency or USDT in a spot market, you will need to go to the spot market, select the STEEM/USDT trading pair, and place your order at the price that suits you. In this market order, executes immediately, whereas a limit, an OCO, etc. are the orders that can only execute the moment the price gets to your level. Spot trading is the best way a beginner can get started with crypto trading.
Future trading
screenshot gotten from binance
The above screenshot is of the futures trading interface of Binance Exchange. Simply put, futures trading is the type of trading whereby crypto traders or investors buy and sell derivatives contracts that represent the value of a certain cryptocurrency. In future trading, you will have to enter into contracts, which means your asset will not be yours until your contract elapses.
In future trading, you will agree to enter into a contract with the hope that the asset will rise or fall. In this case, if you believe that a certain cryptocurrency that is traded on futures will rise further, your agreement will be LONG/BUY, but if you think the certain cryptocurrency will fall, you will have to enter SHORT/SELL.
Futures trading gives you the advantage of making huge profits using the volatility in the crypto market. However, making a profit on future trading depends on how well your prediction goes and the leverage you use. In future trading, you can either enter the market via cross-margin or isolated.
screenshot gotten from binance
In a cross margin, if the amount you enter a trade with is finished, it will cross to your balance, whereas an isolated account will only make use of the amount used in trading. It is good for you to understand risk management and technical analysis very well before going into futures trading, which is recommended for experts.
| Key difference | Spot trading | Future trading |
|---|---|---|
| Leverage | There is no leverage in spot trading, so buying a certain coin would require you to use a huge amount of money. | Future trading offers you the opportunity to open a trade with just a fraction of the market value of the assets, which you can gain up to 100% or more. |
| Long or Short flexibility | Spot trading allows you to benefit from capital appreciation as the price of crypto keeps appreciating value. | In futures trading, you will only be able to profit from either the short or long movement of your trade. |
| Liquidity | Spot trading prices move less. | Future trading prices move faster based on the leverage you are using. |
Conclusion
Spot trading and futures trading are the two types of means of trading cryptocurrencies in the crypto market. It is best to understand how each of them works, which we have learned from this post. For more readings the link below can help you.
Reference
Disclaimer
This post is meant for education and not financial advice for you to go into futures trading when you do not fully understand how it works. It is good that you always conduct your research and practice how to trade futures using a demo account before going live.
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cool review guys.
Of course, now the variation of the market is not only the spot market.
btw, when trading derivatives I tend to use crossmargin compared to isolated. of course there is a clear reason behind it 😅
Dear @josepha ,
We appreciate your active participation and contributions to our community. To ensure a positive environment for all members, we have implemented a set of guidelines to maintain respectful and constructive discussions while upholding community guidelines.
You have given your understanding on spot and future trading, you have also given key difference between them, however, I encourage that you make use of a landscape image rather than a portrait image
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What is your discord id? @josepha. Plz leave a message in steem alliance discord server
This is my Discord ID
Josephafen#5962