Contents of this article:
You can choose a successful tactic for making money on cryptocurrency if you have knowledge only. It will be useful to learn about the differences between futures and spot for a novice trader. We will talk about the features of both markets, about their advantages and disadvantages.
What is the spot market?Cryptocurrency trading on the spot market is buying or selling a coin with an instant transfer of an asset. The transaction is carried out directly between the owners of the assets. If you want to buy bitcoin with a dollar, for example, it is necessary to find a seller who agrees to sell the coin for dollars and make a deal, and this is what the exchange does.
- Price transparency. The price is formed from many factors unlike the spot futures price.
- Simplicity of operations. Clear terms of the transaction lower the threshold for entering the market and trading is understandable for beginners.
- Easy entry and exit from trades. You do not need to constantly check the amount available to you if you do not open short-term positions. You are selling only the money that you have exactly.
- Instability of some assets and traders. This increases the risks and forces you to choose a strategy of behavior carefully.
- Less profit. Spot brings less income unlike cryptocurrency futures.
What is the futures market?
Futures are contracts that reflect the price of the underlying cryptocurrency and date of the transaction. You become the owner of not the asset itself, but the contract by purchasing it, and undertake to continue to fulfill its conditions. It means that the coin will be bought or sold at a predetermined price and on the date agreed upon in the contract. Such speculations are made in an attempt to reduce volatility; the participants in the transaction rely on the movement of the value of the cryptocurrency.
- Low investment at the start. You can start trading with a minimum starting capital.
- Small commission. Trading is carried out with low commissions unlike spot futures.
- Larger leverage. Leverage means a brokerage loan for making a deal.
- Large leverage. This is an advantage and disadvantage at the same time. After all, the margin is deducted from the trader daily if one asset sags heavily in price, the risk of losing funds increases.
- The complexity of the analysis. Traders need to be able to predict and have analytical skills, so the tactics are not suitable for beginners.
Difference between spot and futures trading
There are several differences between spots and futures. What is important to know about them:
- Leverage. Futures unlike spots are traded with leverage, which increases the efficiency of all capital. You can open a trade for 1 bitcoin using only a fraction of its value using a futures contract. This cannot be done in the spot market if you have only $1,000, for example, you can buy a piece of bitcoin equivalent to that amount, rather than the whole coin.
- Liquidity. The difference between futures and spot is higher liquidity. It improves the processes of value formation and helps traders to close positions faster and more profitably.
- Prices. The difference between spot and futures lies also in the value of the asset. Spot market price is the basis for all transactions. The price on the futures is formed from the main spot price and the contract premium. The last one can be positive or negative. Positive indicates that the price in the futures market is higher than in the spot market, and vice versa.
- Flexibility. Spot and futures are flexible, when opening short-term and long-term positions. You can profit from its price growth in the future if you store crypto after buying it on the spot market. Futures provide an opportunity to profit from short-term trades.
It is not enough to understand the difference between futures and spot to successfully play on the stock exchange. It is important to understand all aspects of the cryptocurrency market, to learn how to conduct a detailed analysis and build a behavior strategy. It is easier to do this if you have experienced mentors and support from the same beginners, who are striving to realize themselves in trading. The Crypto Crew community will become your reliable assistant and guide in the world of crypto.