Spot trading refers to the immediate purchase or sale of an asset (like Bitcoin, stocks, commodities, or currencies) for delivery and settlement on the spot. In the context of Bitcoin or cryptocurrency, spot trading involves buying or selli#ng the actual cryptocurrency at the current market price. Here's a breakdown of how spot trading works in more details
Features of Spot Trading :
Immediate Settlement:
When you trade in the spot market, the transaction is completed immediately (or within a short time frame, typically 1-2 business days). The trade is settled "on the spot," meaning the cryptocurrency is transferred to your wallet (if you're buying) or the buyer's wallet (if you're selling).
Market Price:
The price at which you buy or sell is the current market price, known as the spot price. This price is determined by the supply and demand of the asset at that moment.
Ownership:
Once you purchase Bitcoin in a spot market, you immediately own the asset. There’s no need for any complex contract or future date like with futures trading. You can store, transfer, or sell your Bitcoin whenever you want.
No Leverage:
Spot trading typically doesn’t involve leverage (though some platforms may offer it). This means you're trading with the funds you actually have, reducing the risk of massive losses.
No Expiry:
Unlike derivative markets (like futures), spot transactions don’t have an expiration date. Once you buy Bitcoin, you hold it until you decide to sell.
Example of Spot Trading in Bitcoin
Current Bitcoin Price : $97007.04
You want to buy 1 BTC.
You pay $97007.04, and after the transaction, you own 1 BTC.
The Bitcoin is now in your wallet or exchange account.
Advantages of Spot Trading:
Simplicity: It’s straightforward. You buy or sell at the current market price without worrying about expiry dates or complex instruments.
Lower Risk: Since there is no leverage (usually), you are less likely to lose more than you invested.
Full Ownership: Once you buy Bitcoin, it’s yours to keep or transfer.