Today, Brother Yong will briefly explain the differences between spot trading and contract trading for cryptocurrencies.
You can understand spot trading as buying and selling a commodity; for example, if there is a coin priced at 1 dollar and you buy 10, your cost is 10 dollars. Later, if this coin rises to 2 dollars, selling all 10 will give you 20 dollars, of which 10 dollars is your principal, and another 10 dollars is profit. Similarly, if this coin later falls to 0.5 dollars, selling all 10 will give you 5 dollars, resulting in a loss of 5 dollars. Spot trading is similar to the stock market; it involves buying low and selling high without the ability to short.
Contract trading is a way of trading financial derivatives, where you buy or sell an asset through a contract instead of directly trading the physical asset.
In simple terms, a contract is not a commodity; it is an agreement between you and the platform, a type of option. Contract trading can involve leverage. If you currently favor a coin priced at 1 dollar, and you believe it will rise to 2 dollars soon, but you don’t have enough capital (for example, if you only have 1000 dollars in total, if it doubles to 2 dollars, you only make 1000 dollars), you can borrow from the platform to add leveraged contract trading. With an opening price of 1 dollar (coin price), a 1000 dollar margin configured with 100 times leverage (the platform lends you 100,000), your position value is 100,000 dollars. If the coin price rises to 2 dollars, your position value becomes 200,000 dollars, and you pay back the platform after closing the position.
The 100,000 dollars lent to you (leverage) means your profit is 100,000 dollars. But, if the coin price falls by 1%, meaning it drops to 0.99, then you will face a liquidation. This is the allure of contract leverage; the same applies to shorting.
Here, Brother Yong emphasizes: it is not recommended to trade contracts with large funds, as contracts are much riskier compared to spot trading and really test human nature. Before your skills mature, it is advised to trade contracts with small positions, focusing mainly on spot trading.
Why do some people say not to trade contracts for cryptocurrencies?
Because this is a correct but pointless statement.
When investing, you need to choose based on your own situation rather than blindly following others' advice.
If you only have 10,000 or 20,000, playing with BTC or ETH in spot trading is not as good as delivering food. If you have 1 million, playing with BTC or ETH in spot trading would ensure steady happiness.
The stock market is similar; thousands of people invest in value every day. I just laugh when I hear this; isn't it just nonsense?
For cryptocurrency trading, if someone only has a few thousand dollars, and you recommend they buy into the top ten market cap coins, isn't that absurd?
Some people think that not trading contracts is the right choice, telling everyone not to trade contracts. There is no valuable insight in their monologue. If you already have millions, you don’t need anyone else’s advice.
If you don’t even have 50,000, then you need to rethink. In this market, you either go to zero or become rich; there’s no middle ground, and most end up going to zero.
When you have no money, you need to open your mind even more, be bold, and gamble your luck twice. Once you go all in, there isn't much difference between you and the experts; essentially, it’s all about luck. If you place ten orders, the gap between you and the experts will show up. They have trading systems, capital management, and information sources, while you have nothing. Experts are likely to win, and you are guaranteed to lose. Understand this sentence, and you will have a chance to get rich.
Ordinary people don’t trade cryptocurrencies by just watching this or that and buying a bunch of junk, fantasizing about buying a tenfold coin. Instead, they should boldly bet all in, trusting their luck first. When you understand the difference between betting all in once and placing ten orders, you already have hope for accumulating your first bucket of gold!
