What is Spot Cryptocurrency Trading?

What is Spot Cryptocurrency Trading?

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Cryptocurrency stop trading gives investors and traders effective ways to make money. This type of trading is implemented on centralized and decentralized exchanges, there is also asset trading outside the exchanges. We will tell you what spot crypto trading is, how it differs from other types of earnings.

What is a spot trade?

To understand what it means to spot cryptocurrency trading, consider the concept of a transaction in the spot market. Translated from English ” spot ” means “on the spot”. A spot transaction is the purchase or sale of cryptocurrencies in a short time. If in the early stages of the development of crypto exchanges, transactions were carried out over several days, today, thanks to the development of online platforms, transactions are carried out almost instantly.

In spot crypto trading, the transaction is carried out without intermediaries. Any trader can place an order to buy or sell crypto, or accept an order from another member of the platform. The seller, when creating an order, sets the price for which he is ready to sell the asset. The buyer, by submitting his bid, sets the price he is willing to pay. The price depends on supply and demand in the market. A feature of the spot market is the inability to use leverage. Cryptocurrency spot trading is when you can only sell the asset that you own at the time the order is placed.

What is Spot Cryptocurrency Trading on Binance? The rules for users of this exchange are the same as for traders in all spot markets, but with one difference. Most platforms require a fiat account, that is, an account in a regular currency, such as dollars. On Binance, you can directly exchange one virtual asset for another.

How is spot trading different from margin trading and futures trading?

Spot cryptocurrency trading is the basis for other types of trading, as it involves the exchange of assets that are actually owned by the participants in the transaction. The spot market reflects the objective rate of the crypt, on the basis of which the price is formed for margin and futures transactions.

Margin trading differs from spot trading by the opportunity for a trader to borrow an asset, to conclude transactions, the amount of which is higher than his real deposit. For example, with $3,000 in the account, a trader can enter a trade with 10X leverage, and its amount will be $30,000. In practice, this means that the seller is not the full owner of the coin before it is sold, and the buyer does not become its full owner after the purchase. Margin trading makes it possible to significantly increase the profitability of transactions, but at the same time, risks increase.

The difference between futures and spot cryptocurrency trading is that the subject of the transaction is not a coin, but a contract for the difference in its value. By purchasing futures, a trader bets on the growth or fall of the asset in the future. If the forecast came true and the bet played, the trader makes a profit. Participants in the futures market undertake to buy or sell the asset stated in the contract in the future, the maturity of the futures can be predetermined or perpetual.

Pros and cons of spot trading

Spot trading on the cryptocurrency exchange is considered one of the simplest and most understandable, which is why beginners often start with it. This type of trading has many advantages:

  • Price transparency. The value of an asset depends on supply and demand in the market.

  • Instant transactions, low market entry threshold.

  • Easy to enter and exit trades.

  • The volatility of the asset, allowing traders to earn.

  • High liquidity due to the speed of the transaction.

But there are also disadvantages that a novice trader should be aware of. Trading on the spot market is less profitable than trading on margin or futures. Volatility is not only an advantage, but also a disadvantage, since in the event of a market fall, the spot price also falls sharply.

Do you want to understand in detail how spot cryptocurrency trading works? Take a trading course at Crypto Crew and join our community! We teach you how to make money on cryptocurrencies effectively, without risking your initial deposit.