Crypto Academy Week 3 Homework Post for @besticofinder

Hello steemians , I hope you all are doing very well.
In this post , I am here to submit my homework task 3 which I have carried out as required by @besticofinder, crypto professor.

1: Explain Spot Trading and Margin Trading.
2: Discuss the advantages and disadvantages of Spot Trading and Margin Trading

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Making an investment in cryptocurrencies is guaranteed profitable . However as the cryptocurrency market is highly volatile . It is also important to have a clear idea about which market is good for you.

What is Spot Trading?

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The concept of Spot Trading is taking from the stock market and refers to the process of buying and selling of any cryptocurrency in which the exchange settles the trade immediately .

In simple words , when traders are taken and settled instantly , It is known as Spot Trading. It is necessary that , The traders are booked on the spot and not on a specific date in future.

To trade with Spot Trade, there are many tradeing ideas available in the market. You can be a buyer or a seller.

For example: A seller wants to sell 100 Steem coin at $55 and the buyer is ready to buy it at the same price then going with the spot trading option , The buyer will get 100 Steem in their wallet instantly and whenever he wants to get it delivered after he made the required payment to the seller . As crypto currency is mostly volatile, many traders use this option to buy digital assets at low prices and immediately sell them at high prices to make a profit. It's not always compulsory to sell your digital assets immediately . You can keep the currencies in your wallet and save it to make an investment .

Spot trading can be done in stocks, funds, currency , Commodity trading etc. A lot of benefits can be availed by both buyer and seller while investing in the Spot Market.

Advantages / Benefits of Spot Trading

Before start buying and selling cryptocurrencies in any digital exchange , make sure what are benefits you can avail from it.

There are a lot of benefits can be availed by both the buyer and the seller.

• Competative Negotiation : As a large number of buyers are in price war , You can insure to get the best deal as a buyer or a seller.

• Fast Transactions : Our technical advancements of the platform enables quicker transactions.

• Quick Deliveries : Deliveries will occur immediately or whenever the party want.

• Lower transactions cost : Parties will be able to make transactions at lower prices .

• The items are handled and stored in good condition; hence the buyers can expect standard quality.

Disadvantages of Spot Trading

There are some disadvantages of Spot Trading.

• Due to the volatility of some financial instruments and commodities, investors can buy assets on the spot before finding out their true value.

• Spot trades usually lack planning. Because unlike foreign exchange and futures trading, where the parties agree on settlement and distribution on the date of the future.

• The spot market is not flexible in terms of time, as the parties have to handle physical delivery on the spot.

• The interest rate spot market is affected by counterparty default risk. ²

What is Margin Trading?

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Margin Trading = Trading with borrowed funds

When you are trading with margin trading , Margin Trading allows to combining the funds that you have on an Exchange with borrowed additional funds from the broker or an exchange that you are in order to trade and buy assets. This means that you can get leverage on your actual investment or funds.

Margin trading is the process of borrowing funds to buy stock from your broker or an exchange. Basically a loan to you from your broker

For Example: As You want to purchase a bitcoin and you have in your account only $1000 to buy a bitcoin . but you want to get even more exposure to bitcoin that your thousand dollars. Well then if you are on a margin Trading platform , then you can borrow . Let's say you borrow $9000 , So that you now in total you have your $1000 Plus in additional $9000 you borrow from the exchange or a broker . Now you have ten thousand dollars to buy bitcoins in total. That sounds great of course because now you get a much larger exposure to the assets that you are going to purchase. And with that radio, you have a 10x laverage. That means that whatever your funds is in this case $1000, the real exposure that you have into bitcoin would be 10x of your initial investment. So when the stock moves up , you are getting higher returns .

But There is a one condition, when you are borrowing funds from your broker, you will have to sell off your shares the same day . This can be risky if the price falls too low at the last minute of the trade.

So This is the Margin Trading. Margin trading is a high-risk, high-reward trading strategy .You will also make profit and sometimes you will also have to suffer loss.

Advantages / Benefits of Margin Trading

• Increased returns
• Competative interest rates
• Trading Flexibility
• Easier financing options
• Improve the percentage return on the capital deployed.
• Enhance the buying power of the investors.

Disadvantages / Risks of Margin Trading

• Increased potential loss
• You can lose more funds than you deposit in the margin account .
• The firm/broker can sell your securities or other assets without contacting you.
• The firm/broker can force the sale of securities or other assets in your account.

References:

Benefits of Margin Trading
Risk of Margin Trading

Cc:-
@steemitblog
@steemcurator01
@steemcurator02
@besticofinder