Thank you so much Prof @besticofinder for the lectures. I really learnt from it. I'm also grateful for this opportunity to make an entry.

Cryptocurrency Spot Trading

A spot trading is a trading arrangements where buyers and sellers meet to exchange cryptocurrencies with the trade being executed instantly and trade happening instantly.

In a spot market, a trade is executed immediately an equivalent bid and ask price is placed.

This happens in the existence of a trading pair, where two assets are matched; for instance, BTC/USDT. These two assets are known as the Base and quote assets respectively.

Advantages of spot trading:

1. Spot trading comes with some benefits. One of which is the ability to manage your risk. Here, trading is done with your available balance, hence, you wouldn't end up losing more than what you have in your wallet.

2. Spot markets facilitate trading in a transparent environment, where transactions occur at prevailing prices that are public information and known to all parties.

3. Trades are done and completed on the spot.

Disadvantages of spot trading:

The disadvantage of spot trading is that in some situations managing your risks could be downfall itself. Because, you have limited balance in your account, and you can't take full benefits of good trading opportunities.

Image

Margin Trading

Margin trading otherwise known as leverage trading is simply the act of trading with borrowed funds or with funds gotten from a third party.

With margin trading, the volume of trade is expanded thereby leading to larger profit on successful trades.

In a typical cryptocurrency market, the funds are often provided by other traders in an exchange, who in turn earn interest from their investments.

How Margin Trading Works

Before executing a margin trade, the trader has to open a margin trading account. After this, another requirement is the commitment of a percentage of capital. Here, the trader is required to provide a commitment fund of a certain percentage, which is the margin and it is closely related to the concept of leverage.

Leverage describes the ratio of borrowed funds to the margin.

For instance, a margin trade of $50,000 could be opened at a 10:1 leverage, which means that the trader would commit a capital of $5,000.

Traders engage in Margin trading because they want to make additional profit and this happens when there are some future expectations or speculations.

Margin trading can be used to open both long and short positions. A long position reflects an assumption that the price of the asset will go up, so traders borrow funds to buy digital asset in anticipation to sell when the price rises. A short position reflects the opposite.

While the margin position is open, the trader’s assets act as collateral for the borrowed funds.

Advantages Of Margin trading

One major advantage of margin trading is the larger profits which it is capable of generating due to the greater value of trading positions. If trading is executed and the expectations come true, the trader will obviously enjoy more than he would have enjoyed using only his available capital.

Another advantage of margin trading is the possibility of diversification. Traders can open several positions with small amounts of investment capital.

Thirdly, having a margin account may make it easier for traders to open positions quickly without having to shift large sums of money to their accounts.

Image

Disadvantages of margin trading

The major demerit of margin trading is that is is quite risky in terms of the amount a trader could lose if the speculations turn out to be the opposite. There is tendency of increased losses just like increased gains. It is more like a 50/50 chances of gain/loss.

In the event of a loss, margin trading introduces the possibility of losses that exceed a trader's initial investment and, as such, is considered a high-risk trading method.

With margin trading, even a small drop in the market price of an asset would lead to a substantial loss for the trader which may not be so in a normal spot trading.

Hence, proper risk management strategy is needed for this type of crypto trading.