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Crypto Basics: Spot Trading Vs Futures Trading

Hey Coin Collectors,

There are many different types of cryptocurrency trading you can do, and the most basic and common types of trading are spot trading and futures trading. If you are not clear on the differences or have no clue what they are exactly, then read on to find out more!

What is Spot Trading?

Cryptocurrency spot trading, also commonly known as a spot transaction, involves cryptocurrencies and digital assets being traded for immediate delivery — the process of buying and selling — in the market at a specified time and date. This would mean that these digital assets are being transferred between crypto traders (buyers and sellers), where having ownership of these digital assets will warrant traders to be rewarded with various economic benefits.

Coinstore currently supports crypto-to-crypto trading transactions, where we act as an exchange and platform to allow such transactions to take place between the traders. Traders are then allowed to auction and sell any cryptocurrency offered on Coinstore, and whenever a buy and sell trade is matched, the trade will be facilitated on the exchange.

What is Futures Trading?

Futures are derivatives of financial contracts that allow different trading parties to transact an asset at a predetermined date and price in the future. This would mean that a trader is buying or selling contracts that represent the value of the specific cryptocurrency they choose and they do not own the underlying cryptocurrency (unlike spot trading). Hence, the ownership of a futures contract does not warrant traders to be rewarded with any economic benefits.

Despite the lack of direct economic benefits with the ownership of a futures contract, there are other benefits of a futures contract traders can benefit from, such as — protection against volatility and adverse price movements on the underlying asset, and it acts as a proxy for traders to speculate on future price movements of a specific cryptocurrency without the owning the digital asset. In other words, traders are able to speculate and benefit from the price volatility and profit from any price movements of cryptocurrency.

Coinstore currently supports forward perpetual swaps, where we allow traders to speculate and place their “bets” on the price movement and volatility of a certain cryptocurrency.

What are the Key Differences between Spot & Futures Trading?

  1. Ability to Leverage — One major reason why traders do futures trading, is due to the leveraging ability of futures. Through futures trading, traders are not required to purchase the cryptocurrency but are still able to make a profit by speculating on the price of the cryptocurrency.
    For example, purchasing 1 BTC in the spot market would require thousands of dollars, however, with futures contracts, traders can open a BTC futures position at a much cheaper cost.
    Leveraging does not require traders to put up 100% of the futures contract value amount, and only a portion of the total contract value is required as an initial margin amount. With futures trading, traders are able to spend a smaller amount of money relative to spot trading but are able to earn larger profits with leveraging.
  2. Liquidity — With the large number of traders doing futures trading, the futures market has large liquidity pockets with trillions in monthly volume. Such robust liquidity supports the market by allowing traders to trade and transact with ease and efficiency. With greater market liquidity, there is generally a lesser risk as there would definitely be another trader who will accept the other side of a position. Take, for example, the Bitcoin futures market which has an average monthly turnover in trillions — much higher compared to the Bitcoin spot market trading volume.
  3. Flexibility to Speculate Long or Short — In spot markets, profits are only earned when cryptocurrency prices go up, thus there are no profits when prices go down. With futures, traders are able to make calls regardless of the direction of the price movement, allowing traders to profit from short-term price movements. This characteristic of futures, also allows traders to protect their portfolios from unexpected risks.

Conclusion

After going through a brief explanation about spot and futures trading, we hope we are able to help you understand more about the different types of trading available on Coinstore and which type of trading is more suitable for you, or even both! Spot trading is definitely what you can start with if you are a newbie and beginner to cryptocurrency, once you are more familiar with how cryptocurrency works, futures trading could be something you dabble in as well!

Coinstore risk warning:

Futures trading is subjected to high market risk. Please make your investment cautiously and pay attention to related risks. Coinstore, as a trading technology service provider, does not undertake guarantees, compensation, and other responsibilities of any user’s investments.

Content by:
Sook / Coinstore Crypto Enthusiast

Any comments, tips, or projects to share with us? Just drop Sook an email at sookhui@coinstore.com. Look forward to hearing more from you guys 😉

About Coinstore

It’s never too late to start diving into the world of cryptocurrency. Whether you’re young or old, a pro or a newbie, Coinstore welcomes you to our arcade where we learn together… the fun way! We make cryptocurrencies available for everyone in a sleek, exciting, and simple fashion, equipping you with experience and techniques to buy, sell and trade on the go.

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