Spot and futures trading are two different types of trading activities in the financial markets, including the crypto market. Spot trading involves the buying and selling of assets directly at the current market price for immediate delivery, while futures trading involves contracts to buy or sell assets in the future at a price agreed upon today.
Here are the main differences between the two:
Spot Trading:
Asset Ownership: Traders directly own the assets they purchase.
Price: The spot price reflects the current value of the asset in the market.
Risk: The risk primarily comes from fluctuations in market prices but is generally considered lower compared to futures due to the absence of leverage.
Leverage: There is no leverage in spot trading.
Suitable for: Traders who want to invest for the long term and own assets physically.
Futures Trading:
Asset Ownership:
Traders do not own the underlying asset but only have contracts to buy or sell in the future.
Price:
The futures price reflects market expectations about the future price of the asset, influenced by various factors including interest rates, storage costs, and supply and demand expectations.
Risk:
The risk is higher due to the use of leverage, which allows traders to open larger positions than their available capital.
Leverage:
The use of leverage is common in futures trading to amplify potential gains or losses.
Suitable for:
Active traders who want to speculate on short-term price movements and are willing to take on higher risks.