Crypto traders have access to different trading activities in exchanges. Typically, crypto exchanges like Binance and Coinbase offer multiple trading options like spot trading, margin trading, and futures trading.
These trading options may seem simple, but they have risks attached to them, meaning that a trader has to analyze them before making a decision.
Crypto spot trading
Crypto spot trade means that the trader wants to purchase or sell their crypto for instant delivery on a specified spot date. Usually, when a crypto enthusiast is involved in spot trading, they are selling or buying that token at that moment.
It is unlike futures trading, where the trader is betting on the future price of the cryptocurrency.
When a trader does crypto spot trading, they usually get delivery of the token immediately at a specified spot date.
Crypto margin trading
When a trader buys cryptocurrency on margin, it means that they are borrowing money from their broker to buy the token. Usually, when this happens, the trader has to borrow money from the exchange, then use it to purchase cryptocurrencies.
This means that the crypto enthusiast has to take a loan, purchase the crypto with the lent funds, then repay the loan with interests. By margin trading, the trader is trying to improve their potential profits via the usage of leverage. This means that if losses occur, the size is also magnified.
Crypto futures trading
Crypto futures trading offers traders the opportunity to bet on the future price of the cryptocurrency. The trader is not expected to own the cryptocurrency that they are betting on before they can get involved in futures trading.
The underlying asset differs. If it is Bitcoin futures, then the underlying asset is Bitcoin. Using futures is a way of hedging risks. A
As always, it is important to do your due diligence before opting for any trading options.