Hello dear friends and fellow steemians, it is te again for me to submit my homework task from @besticofinder. It is all about spot trading and margin trading. Please along as I give my explanation of these words as well as their advantages and disadvantages.

Spot Trading Explained

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A spot trade, also known as a spot transaction, this is known as the buy it sale of a foreign currency or commodity is any financial instrument that will be delivered instantly on a specified spot date. It is the normal buying and selling where cryptocurrencies are bought or sold and paid for at the spot without differing the payment. Such trading takes place at the spot market. In this market, settlement happens instantly, and not at a later date. With spot trading, you are essentially executing a trade at the immediately available asking and bidding price that market participants are asking for

Let's assume that I want to buy $2000 worth of bitcoin, in the spot market, I must have that amount as my balance before the settlement date before the exchange can allow me to enter into the bitcoin position

Margin Trading Explained

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This is a wonderful feature in crypto trading where by one decides to trade with a borrowed find. The concept has it that there is is a provision whereby one can borrow fund and make up with little he or she has and execute trade. One uses a borrowed find to leverage his or her position. This is quite unlike the spot trading where you must have the complete find required to execute a trade. But you will need to
have a collateral assets that is at a margin of the position that you are trying to enter.
Margin trading is not your normal buying/selling. Rather, a margin trade in one product is a bet on the price of that product, using borrowed money to attempt to increase your profits

Some trading platforms allow you a leverage of up to 100 times, it therefore means that if for instance you are trying to buy $2000 bitcoin, you will need to only have $20 of your own to execute the transaction instead of the whole amount. This is amazing. At any point in time, you only need to keep 1% (at 100x leverage) of the contract amount in your account to keep the position open. Depending on how your trade goes, you might even be able to withdraw profits or enter into more positions.

Discuss the advantages and disadvantages of Spot Trading and Margin Trading

In every decision we take in life, there is always the good side as well as the bad side. In all, we need to weigh the options carefully before taking such decision especially as it has to do with our assets before they turn to liabilities. It is at this backbone that I want to discuss the known advantages and disadvantages of both spot trading and margin trading.

advantages of spot Trading

In spot trading, you are the king who have absolute control of what he has. You can better manage your assets and be able to predict your profits based on your trading. This, you will not be in fear of repayment when ever you make a loss in your trading. This, one can avoid over leveraging on borrowed assets and avoid being a debtor.

Disadvantages

It is indeed a disadvantage to only depend solely on the profit made by your little fund especially when you have other trading opportunities which you could have taken advantage of and make profit. Here L, you cannot trade beyond your limit of the available fund that you have. Even you you notice a trade that you can enter but because of your limited fund, you can not enter it and this situation is usually very painful. Hardly will you see a successful business person or organization that solely depends on their limited funds.

Advantages of Margin Trading

With margin trading, one has access to funds that are borrowed which he or she can leverage on and make more profitable trading when noticed. You have the opportunity to make more profits because you will always enter trades that available that are profitable. Take for instance,we all know that if a trade we enter with let's say $1000 can gain a profit of $100, if we enter the same trade with $3000, we will make like $300 or even above. That is the power of having assets to leverage on.

Disadvantages of margin trading

An ancient book noticed that a borrower is a slave to the lender. And that is exactly what happens when one decides to use margin trading. And as a slave, you will be controlled instead of being in control. If you trade below the expected limits, you can be knocked off the trade without your consent.

Think about the interest on your position, which is an uncertain amount depending on the direction of your position and the platform you choose. You will not have any bargaining power at all.

In the event of looses, hmm, you will not live in peace. Someone like me that is afraid of borrowing, I will not eat well until I would have settled my debts.

The huge profit you made today might be swallowed and even more as a result of your much exposure. This is because, due to the fact that you have access to fund to leverage on, you will needlessly have much exposure while trying to take advantage of trades you think might be profitable. If such trade goes against you, then you are in a mess.

what will be your decision

After considering the above advantages and disadvantages of both spot and margin trading, it is now left for the trader to decide which one to take advantage of. You understand yourself and what you can or cannot tolerate. Both spot and margin trading can be profitable. So feel free to choose but I will like to choose spot trading. I can handle it more than margin trading.

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