Spot Trading*:
- Buying and selling assets in the spot market, where the asset is delivered immediately.
- Advantages:
- No counterparty risk.
- No margin requirements.
- Disadvantages:
- No leverage.
- Limitations on the number of trades.
*Futures Trading*:
- Buying and selling futures contracts, which obligate you to buy or sell an asset at a future date.
- Advantages:
- Leverage: You can control large positions with small amounts of capital.
- Flexibility: You can close positions before the expiration date.
- Disadvantages:
- Counterparty risk: There is a risk that the other party will not fulfill their obligations.
- Margin requirements: You must maintain a margin to cover potential losses.
Strategies:
- *Arbitrage*: Taking advantage of price differences between the spot market and the futures market.
- *Hedging*: Using futures to protect against potential losses in the spot market.
- *Speculation*: Using futures to take advantage of market movements and obtain Spot vs Futures: Strategies
*Spot Trading*:
- Buying and selling assets in the spot market, where the asset is delivered immediately.
- Advantages:
- No counterparty risk.
- No margin requirements.
- Disadvantages:
- No leverage.
- Limitations on the number of trades.
*Futures Trading*:
- Buying and selling futures contracts, which obligate you to buy or sell an asset at a future date.
- Advantages:
- Leverage: You can control large positions with small amounts of capital.
- Flexibility: You can close positions before the expiration date.
- Disadvantages:
- Counterparty risk: There is a risk that the other party will not fulfill their obligations.
- Margin requirements: You must maintain a margin to cover potential losses.
Strategies:
- *Arbitrage*: Taking advantage of price differences between the spot market and the futures market.
- *Hedging*: Using futures to protect against potential losses in the spot market.