On Binance, you can trade cryptocurrencies using two main types of trading: Spot Trading and Futures Trading. Here's a brief overview of each:
*Spot Trading:*
- Spot trading involves buying or selling cryptocurrencies at the current market price.
- You can buy or sell cryptocurrencies using your available balance.
- Spot trades are settled immediately, and the assets are transferred to your account.
- You can use spot trading to buy or sell cryptocurrencies for immediate delivery.
Example: You buy 1 BTC at the current market price of $50,000. The 1 BTC is immediately transferred to your account, and you can use it for further trading or hold it as an investment.
*Futures Trading:*
- Futures trading involves buying or selling a contract that obligates you to buy or sell an asset at a predetermined price on a specific date.
- Futures contracts are leveraged, meaning you can trade with a smaller amount of capital, but you'll also face higher risks.
- Futures trades are settled at the expiration date, and the profit or loss is calculated based on the difference between the contract price and the settlement price.
- You can use futures trading to speculate on the price movement of an asset or to hedge against potential losses.
Example: You buy a 1 BTC futures contract with a leverage of 10x, expiring in 1 week. The contract price is $50,000, and the settlement price is $55,000. If the price of BTC increases to $55,000, you'll make a profit of $5,000 (10x leverage). However, if the price decreases to $45,000, you'll incur a loss of $5,000.
*Key differences:*
1. *Leverage*: Futures trading offers higher leverage, which can amplify your gains or losses.
2. *Settlement*: Spot trades are settled immediately, while futures trades are settled at the expiration date.
3. *Risk*: Futures trading involves higher risks due to the leverage and the potential for significant losses.
4. *Fees*: Futures trading typically involves higher fees compared to spot trading.
