We are definitely living in the cryptocurrency era. The number of crypto enthusiasts is increasing on a daily basis. As a result, more and more people are willing to be part of the crypto-trading world.
For beginners, understanding the difference between spot trading and futures trading is the first step to becoming a successful trader. In this article, we will give you all the resources you need to clearly understand these two types of trading.
What does the term ‘spot’ mean?
Before delving into the meaning of spot trading, it’s always better to have an understanding of the term “Spot”. Spot is a kind of contract that can be immediately settled. In the crypto-world, spot markets are used to trade cryptocurrencies or tokens. This process is known as spot trading.
What is Spot Trading?
When you make your first steps into the crypto world, spot trading is usually the first type of investment that comes to mind. How does it work? Spot trading means purchasing cryptocoins such as Bitcoin or Ether or XRP and holding it until their value will rise. A Spot Market is the market where all of the aforementioned happens. It’s the core of cryptos’ exchanges. Generally speaking, spot trading happens when someone aims to buy a specific asset. Some of the most popular exchange platforms for spot trading include LYOPAY, Binance, Kucoin and Coinbase.
What is Futures Trading?
If you’re into the trading world, you will surely have run into the word “derivative”. This term refers to a financial security with a value that depends on an underlying asset. These assets are typically stocks, bonds, market indices, commodities and currencies. Derivative trading can also be called futures trading. The key idea of futures trading is that it’s a bet. You have a cryptocurrency and you bet its value to either rise or drop. In such a space, traders don’t actually own cryptocurrencies, but rather trade based on how much the value of currency will increase in the market. It’s the accuracy of your speculation that will cause profits or losses. As you may notice, there is a big difference between these two types of trading.
With futures trading you can leverage and don’t need to invest in the total contract value. And you don’t need to own a currency, in order to trade futures. These contracts always have a set expiration date.
Which trading is the better one?
There is no safe answer. On a general level, futures trading requires experience and knowledge, being harder to read and understand. Spot trading, on the other hand, is quite easier to approach, especially if you’re a novice trader.
The price of cryptocurrency is very volatile, as it may rise and drop sharply in a short time. For this reason, it’s better to pay additional attention to your investment policy.
Did you know? LYOPAY, while encompassing primary payment services, can also provide services for professional trading. At the moment, 18 currencies are available on the App. Read more if you want to discover how our Super App works.