Cryptocurrency in recent times has increased its demand in the market. Almost every sector and every individual nowadays is talking about crypto. Not just that, many are even getting their hands dirty in this recently popular-gained currency. If you are wondering about bitcoin trading and you want to trade check BitAlpha AI.
Many people think that cryptocurrency is firmly based on virtual currency transactions, meaning that they are just a digital currency utilized by businesses and individuals as a payment medium. However, crypto has ruled out this misconception and has come out to be more than just a payment method.
Many people now send a gift using crypto, and a huge number use it for trade and mining. Talking about cryptocurrency trading is a bit complex. Platforms like the Bitcoin Trading Platform and many others have turned out to be a great option for pros and even beginners to start trading. But, in the crypto sector, trading is more than what we think it is.
Normally, there are different types of trading that a person should know about when trading in exchanges, whether they are conventional stock exchanges or cryptocurrency exchanges. The only difference between exchanges is the volatility.
In this article, we will look at the differences between spot trading and futures trading, two of the most followed trading methods.
Spot Trading
It is a type of trading where the buyers and sellers directly interact for transactions of whatever cryptocurrency they are trading. The cryptocurrency can be Bitcoin, Ethereum, Litecoin or Dogecoin. In the time between the buying and selling, the relevant cryptocurrency is in the ownership of the user.
The direct transfer of cryptocurrency makes sit an instant transaction, and cryptocurrency exchanges facilitate transactions when the bid prices match for either buying or selling. These exchanges act as intermediaries and are available day and night as crypto trades can take place anytime and anywhere in the World.
Futures Trading
Futures trading is a type of trading that does not include actual commodity, currency or security but agreement, also referred to as contracts. It is the same principle for conventional stock exchanges and crypto exchanges as mentioned above. In this trade, buying an agreement means the user buys the cryptocurrency at a future date.
Due to the high volatility of the cryptocurrency market, there are no options for staking and voting as present in conventional exchanges. It is a measure in crypto exchanges to protect users from the more significant and instant losses in the fast-paced market.
Futures trading in cryptocurrency provides speculation for the actual values of the cryptocurrency and its trends. It enables the user to profit from the crypto market even with high volatility. It will also let a user know the ride or fall of a currency so that the user can trade and set limits accordingly.
Differences between Spot and Futures Trading
As we briefly discussed spot trading and futures trading in the above section, let’s have a look at what are the basic differences between them.
| Spot Trading | Futures Trading |
|---|---|
| A user may benefit or bear loss depending on the rise or fall of the market. | No matter the fluctuation period in trend, a user gets profit, whether short or long. In the future, trading will have protection features for traders. |
| The value of a cryptocurrency in spot trading depends on the supply and demand of the particular currency. The price at which all the transactions settle is the spot price. | In futures trading, the price value is a sum of the current spot price and futures premium. A positive premium is higher than the spot value, while a negative premium price is lower than the current spot price. |
| In spot trading, the user has to buy the security or cryptocurrency at an actual cost to sell or hold it. | The futures trading offers leverage to buy contact or agreement of a cryptocurrency at a fraction of its actual price. |
Conclusion
The crypto market is a volatile market to trade. It can become a nightmare for new traders and users with insufficient knowledge of cryptocurrency or trading. Given that, it is important for every beginner trader to understand the types of trading in crypto. In this article, we have discussed the differences of the macros of cryptocurrency trading strategies.
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