#TradingTypes101
Spot Trading refers to buying or selling a financial asset, such as a cryptocurrency or stock, at its current market price with immediate settlement. In this type of trading, you pay the full amount upfront and take ownership of the asset right away. Spot trading is considered the most straightforward method, as there is no borrowing or leverage involved. It's ideal for those who prefer lower risk and long-term holding strategies.
Margin Trading involves borrowing funds from a broker or exchange to trade larger positions than your actual account balance allows. This method amplifies both potential profits and potential losses. For example, if you use 2x leverage, a 10% gain in the asset’s price results in a 20% gain on your capital, but a 10% drop would mean a 20% loss. Margin trading requires careful risk management and is typically used by more experienced traders looking to maximize returns in short timeframes.
Futures trading is the act of buying or selling contracts that obligate the transaction of an asset at a predetermined price and date in the future. Unlike spot trading, you don’t necessarily own the asset — you’re speculating on its price direction. Futures can be used for hedging risks or profiting from market volatility. These contracts are often leveraged, adding risk and complexity. Futures trading is popular in commodities and crypto markets, where traders seek to profit from both rising and falling prices.
