Advantages of spot trading over futures trading
Very often you can hear the question: “Don’t you trade futures? Because I don’t have enough money, I need to raise it so that I have something to trade on the spot.” In order not to answer each one individually, here is an explanation of why spot trading has a number of advantages over futures trading.
Futures: the illusion of quick money
Futures trading often seems attractive with promises of high returns, but this is just an illusion. Why?
The Illusion of Income: Many beginners only see pretty numbers on the screen in the form of PNL (profit/loss), but this does not reflect real income in the long run.
High risks: Aggressive futures trading can yield high returns, but in 95% of cases it ends in a complete loss of the deposit.
Futures trading problems
Liquidation risk:
In futures, the risk of losing your entire deposit due to liquidation is very high.
Even if you use stop-losses, the market can easily “blow them away” and turn in the right direction without you.
Psychological pressure:
Constant control over positions, stress due to possible losses, aggressive behavior - all this negatively affects the psyche.
People often hold losing positions for too long, hoping for a reversal, but close profitable ones too quickly.
The illusion of control:
Even if you are lucky at first, it gives you a false sense of confidence. Later, the market will punish you, and you may lose not only your earnings, but also your entire deposit.
Advantages of spot trading
Unlike futures, spot trading has a number of advantages that make it much safer and more stable:
No risk of liquidation:
In spot, you will not lose your entire deposit due to a sudden impulsive market movement.
You can even survive “black swans” (unexpected events) if you are confident in the prospects of the asset.
Minimizing psychological pressure:
With spot, there is no need to constantly check the exchange or worry about liquidation.
You can hold positions for the long term without worrying about short-term fluctuations.
Flexibility:
If the market temporarily falls, you can simply hold onto your assets until they recover without fear of losing everything.
Wars, epidemics, or other force majeure events will not force you to “fly out” of the market, as can happen with futures.
Profitability stability:
With the right approach to risk management, spot trading can be as profitable as futures trading, but with much lower risks.
Conclusion
Futures trading may seem attractive to beginners because of the illusion of quick profits, but its risks and psychological pressure make it unsuitable for a stable income. Spot trading, on the other hand, allows you to avoid many of the problems associated with liquidation risks and emotional stress. It is a safer and more reliable way to work in the market, especially for those who are just starting out in trading.