Spot trading is another extremely popular type of cryptocurrency trading. It involves buying and selling crypto against other assets, for example fiat currencies, or other cryptocurrencies. If we make a comparison to other types of trading, we can say that spot trading is a simple method that can be done by anyone with basic understanding of the market.
What exactly is spot trading?
As we already said, spot trading is a popular type of trading, often chosen by beginners. It involves immediate buying and selling of assets.
Except for cryptocurrencies, spot trading is possible for other assets, such as shares, commodities, forex, and bonds. One of the most popular spot markets is NASDAQ.
Spot trading doesn't require much commitment, and works as a good way to hedge against future price movements. For example, if you think that a price is going up, you can use a spot market and buy. If you think the price is going down, you can go to a spot market and sell.
Spot trading vs. Futures trading
Still, there is a lot of misunderstanding among cryptocurrency traders, as the market is relatively new.
Of course, to find out what trading type suits you best, you must understand the main differences:
Spot trading refers to buying and selling digital assets for immediate delivery.
Futures trading requires an agreement between two parties to buy or sell an asset at a given price, at a later date.
A key difference between them both is the level of commitment involved. When entering into a futures contract, you agree to buy or sell at a given price, while with spot trading you make no such commitment.
Spot trading - Advantages
Spot trading definitely has some advantages, compared to other popular types of trading (for example margin or futures trading). Here are some of them:
It is simpler, and easy to understand. Spot trading is a great trading type for beginners, who are just getting started in the crypto market. This is a great way to understand how the market works and how to trade crypto.
There are no complex contract terms or managing leverage.
Spot trading allows you to benefit from changes in the asset price, and not only from the direction of price movement.
You don’t have to wait for the contract to expire. You can take advantage of the market opportunities right away.
It is good for both short-term, and long-term trading.
Spot trading - Disadvantages
Although spot trading is a fast and relatively easy way to make money, it also comes with some disadvantages. Be aware, before you jump into trading.
Volatility of the crypto market - this is one of the biggest drawbacks of spot trading, as prices can fluctuate widely from one day to the next. This way it is difficult to decide when to buy, and when to sell, and if you are not careful, this will lead to losses.
You have no leverage, which means that you can not trade more than you have in your account. You also can’t borrow money from a broker, as you can do in other traditional markets.
Spot trading comes with fees, and taxes, including exchange, withdrawal, and deposit fees. Be aware, as this can eat into your profits.
Not every exchange offers spot trading for every cryptocurrency. Keep that in mind, as you may not be able to find a buyer or a seller for your asset.
Conclusion
To conclude, we can say that spot trading is a great way to make money, but it also comes with a risk. Never forget that the cryptocurrency market is highly volatile, and prices can change extremely fast.
As we always like to say, always do google research before investing in the crypto market, and never invest more than you are willing to lose.