#TradingTypes101
Example:
You buy 1 Bitcoin for $70,000. You now own that Bitcoin and can transfer or hold it.
Pros:
Simple and straightforward.
Lower risk (no leverage).
You actually own the asset.
Cons:
Limited profit potential unless the asset significantly increases in value.
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🟠 Margin Trading
Definition:
Trading with borrowed funds to increase buying power (leverage).
How it works:
You borrow money from a broker/exchange.
You can go long (bet price will go up) or short (bet price will go down).
You need to maintain a minimum balance (margin) to keep the position open.
Example:
You have $1,000 but use 5x leverage to trade $5,000 worth of Ethereum.
Pros:
Higher potential profits.
Ability to short-sell (profit from falling prices).
Cons:
Higher risk due to leverage.
Can result in liquidation (losing your position if the market moves against you).
Interest fees on borrowed funds.
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🔴 Futures Trading
Definition:
A contractual agreement to buy or sell an asset at a future date for a predetermined price.
How it works:
No actual buying of the asset; it's a contract.
Can be used for speculation or hedging.
Most platforms allow high leverage.
Settled in cash or the underlying asset.
Example:
You buy a futures contract predicting Bitcoin will be $72,000 in a month. If it rises to $75,000, you profit the difference.
Pros:
High leverage available.
Can profit in both rising and falling markets.
No need to hold the actual asset.
Cons:
Very high risk due to leverage and volatility.
Can result in total loss if the market moves sharply against you.
More complex than spot trading.
