Spot Trading and Margin Trading || Advantages and Disadvantages
Intro
Trading is a very common term in the present world of exchange or blockchain-based market. We know from the definitions of market that Market is not define as a place. It's basically a mechanism where buyers and sellers come together to sell or buy their products. In that context, online market is a market. For being a market, physical place is not necessary.
In exchange market the currency is being traded instantly that is called spot market. The price at which buyers and sellers are agreed to buy and sell their asset or currency or token is called the spot price or current price. In that case the token, assets or money can be traded anytime in real time basis. This market opens for 24 hours and 7 days in a week.
Source: Image by Gerd Altmann from Pixabay
So, trading is one kind of art where a lot of Technical Analysis are associated with. Trading has several tools which we must know before going to trade. In several exchanges or trading house, there are several fees of withdrawing depositing or sometimes exchanging as well. And most importantly the price Trend to know. To be the gainer in trading market anyone needs to learn a lot about the market condition, scenario, news, knowledge, gambling, whispering. Without being expertise in the field of Technical Analysis or overall view of the market, it's really difficult for everyone to gain profit by trading in spot market. So, this is basically called the technical analysis which is really important to learn about trading to be the good analyst of the market. In today's part I am going to share Spot market of Spot trading and Margin trading. I shall define these two and will discuss elaborately about Advantages and disadvantages of these two trading options.
Definition:
Spot trading is your normal buying/selling. You spend one currency to get another. Margin trading is not your normal buying/selling. Essentially, a margin trade in one product is a bet on the price of that product, using borrowed money to attempt to amplify your profits
Spot Trading Example:
You would like to buy 100 steem with US dollar. So, in that case you need to have the equivalent amount of US dollar in a specific time of trading at your wallet to purchase 100 steem. In other words, trading of steem with US dollar.
Margin Trading Example:
I will give two examples of margin trading so that it can be very much easy for anyone to understand.
Like previous example if you want to buy 100 steem with US dollar, then you don't need to have that much equivalent US dollar in your wallet. The trading websites are providing several kinds of leverages. For example, if they provide 1:5 leverage then you need to have 5 times less amount of US dollar in your wallet to trade hundred steem. This is a special support from the trading websites. In other words, you are borrowing for trading and after gaining you are repairing that borrowed amount.
Source: Image by Pexels from Pixabay
Another example, you are going to buy securities worth $100. In that case you are paying 50% in cash and 50% in borrowed form from that broker. When you are selling this security for example you are gaining 20% of profit. So, it is now $120 worth. That means you are liable to pay only $50 because it was borrowed. And your asset is now worth of $120. You don't need to share any part of your profit or capital gain or Revenue gain. You need to pay only the borrowed amount that is 50% of $100 like $50 only for whatever the amount you are gaining or losing.
Advantages of spot trading over margin trading (Disadv. of Margin)
For the starter who don't have much more knowledge on the market and who are not the analyst of the market, they should try with spot reading. Here if they lose something, they will lose only the invested amount. There will have no chance of losing the money more than they have invested in the exchange site. Those who just want to do business from their money they can go for spot trading. It is less risky because they are not using the fund of others while trading. With the lower amount of investment return will be low but ultimately the risk will be minimum
Disadvantages of spot trading over margin trading (Adv. of Margin)
The main problem with the spot trading is you cannot amplify your profit. You need to be in the boundary of your invested asset. But if you could use others fund for getting profit you could use margin trading. Margin trading allows the analyst to gain profit from others money. Those who have knowledge skill and information about the market they can amplify their return with margin trading but they cannot do so with spot reading because in spot trading they need to invest huge. If leverage is 10 times then there is an opportunity to profit up to 10 times if anyone have good knowledge of the market or any currency he or she buying or selling. He or She can use this leverage for gaining more and more. So, spot trading is restricting us to gain more when we have positive trend, strong knowledge of the market. On the other hand, margin trading is allowed us to take some risk and amplify the return of trading.
Source: Image by Csaba Nagy from Pixabay
Final Words:
Finally, spot trading is very much worthy for the investor or traders for gaining some profit who are new and don't have enough knowledge about the market but margin trading is an opportunity for the good analysts and market researchers to gain multiple of profit by using the fund of others, I think.
This is the Participation post of SteemCrryptoAcademy Home Work Of Lesson 3 (How to spot trade ? Everything a beginner need to know ...) by @besticofinder
This Post is Plagiarism Free
This Post is Plagiarism Free
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