Spot Trading vs Futures Trading in Crypto: Everything you should know about

Introduction to Leverage in Crypto Trading

Leverage in crypto trading refers to the use of borrowed funds to increase the potential return on investment. This means that traders can control a larger position in the market than they would be able to with a smaller amount of capital.

For example, if a trader has $1,000 and uses 10x leverage, they can control a position worth $10,000 in the market. This can potentially lead to higher profits, but also higher losses. Thus, leverage is a double-edged sword, as it can amplify both gains and losses. While it can increase potential profits, it also increases the risk of losing more than the initial investment if the trade goes against the trader’s view of the market.

It is important for traders to carefully consider their risk tolerance and trading strategy before using leverage, as it can quickly lead to significant losses if not used properly. Additionally, traders should be aware of the fees and interest rates associated with using leverage, as they can add up quickly and eat into potential profits.

Read more: How to start crypto trading with $100

Introduction to Spot Trading

Spot trading in crypto refers to buying and selling cryptos for immediate settlement, as opposed to trading derivatives or futures contracts. It is the most common type of trading in the crypto market today that beginners like to work with. In spot trading, buyers and sellers agree on the current market price of a particular crypto asset, and the transaction is settled in real-time, with the asset being transferred from the seller’s wallet to the buyer’s wallet.

One of the advantages of spot trading is that it allows traders to hold actual crypto assets, which can be transferred to their own wallets and held for the long term. This isn’t the case when it comes to futures or any other type of derivatives trading, where the trader only holds the contract and not the underlying asset. Additionally, spot trading is generally considered less risky than trading derivatives or futures contracts, as traders are not exposed to the same level of leverage and potential for liquidation.

Introduction to Futures Trading

Futures trading in crypto involves the buying and selling of contracts that obligate the buyer or seller to purchase or sell a crypto asset at a predetermined price and date in the future. This means that traders can speculate on the price of the asset without actually owning it. Futures trading in crypto is typically done on centralized exchanges, with the most common crypto futures contract being the perpetual contract, which has no expiration date. For example, BTCUSDT perpetual futures is a futures contract that you can trade on.

One of the main advantages of futures trading in crypto is the ability to use leverage, which can increase potential profits. Leverage, as mentioned earlier is a very tricky thing that can be very profitable if used well. This makes futures trading in crypto a useful tool for experienced traders looking to speculate on the price of cryptos, but it is not recommended for beginners or those with a lower risk tolerance.

Read more: Comprehensive Guide to Crypto Futures

Similarities: Spot vs Futures Trading

Both spot trading and futures trading in crypto involves the buying and selling of cryptos, but they differ in terms of settlement and risk. In spot trading, any transaction is settled immediately between the two parties, with the asset being transferred from the seller’s wallet to the buyer’s wallet.

However, in crypto futures trading, which is typically perpetual in nature, there is no asset settlement as such, but rather the opening and closing of a contract on the market, which is called open interest, and the settlement happen in cash when the contract is closed.

Read more about open interest here: Crypto Futures Trading Terms

Differences: Spot vs Futures Trading

Start Crypto Futures Trading NOW

Risks: Spot vs Futures Trading

Some of the risks associated with spot trading include price volatility, liquidity issues during major events and also the potential of fraud and hacking on the project itself or on the platform used for the transaction. However, the crypto market is still in its nascent stages and as it grows and matures, these risks will begin to subside more and more.

As mentioned earlier, the concept of leverage happens to be a double-edged sword and thus a trader needs to be very careful while trading in the crypto Futures markets. While leverage can increase profitability, at the same time the downside risk also goes up.

Read more: Risks in crypto futures trading

CoinDCX Futures Trading

CoinDCX now offers its users the ability to trade in the futures markets to maximize their earnings out of the crypto market. On the CoinDCX pro app, users can participate in the global crypto futures markets which offer high liquidity and lower slippage costs and thus the most useful for active traders today! Easily trade in various futures markets, ranging from BTCUSDT, ETHUSDT, SOLUSDT and various others.

Read more: Guide to CoinDCX Futures Trading app

FAQs