What is Spot Trading?
Spot trading is the most straightforward method where two parties agree to buy and sell crypto immediately at the current market price. It is commonly used for instant transactions, where the goal is to purchase at a low price and sell at a higher one to secure profits.
What is Futures Trading?
Futures trading involves an agreement between two parties to buy or sell a crypto contract at a specified price in the future. Unlike spot trading, no actual transaction occurs when the contract is signed. Instead, the trade is executed at the future price when the crypto asset reaches the agreed-upon value. This method is based on speculation, where traders aim to profit from price movements over time.
Read more: A complete guide on Crypto Futures
Spot Trading vs. Futures Trading: A Detailed Comparison
Spot Trading
Spot Trading involves buying and selling cryptos for immediate
Advantages:
Simplicity: Easy to understand and execute, making it suitable for beginners.
Immediate Ownership: Crypto traders own the actual asset, allowing for long-term holding or immediate use.
Lower Risk: Generally considered less risky since there is no leverage involved.
No Expiry: Positions can be held indefinitely without worrying about contract expiration dates.
Disadvantages:
Capital Intensive:
Advantages:
Leverage: Allows crypto traders to control larger positions with a smaller amount of capital, potentially amplifying returns.
Hedging: Useful for
High Risk: Leverage amplifies both gains and losses, increasing risk.
Complexity: Requires a deeper understanding of crypto market dynamics and margin requirements.
Margin Calls: Traders may face margin calls if their positions move against them, requiring additional capital to maintain positions.
Read more: How to trade perpetual Futures on Zebpay
Factors to Consider When Choosing Between Spot and Futures Trading
When choosing between spot and futures trading, several factors must be considered to align contracts have expiration dates