Trading cryptocurrencies on spot and futures: a complete guide and comparison

Spot and Futures Cryptocurrency Trading: Key Differences

There is no need to marvel at the fact that cryptocurrency trading has revolutionized economic society, opening up new opportunities for traders as well as investors. The two most famous ways of trading in cryptocurrency trading are transaction and futures trading. The two methods have their own unique properties, advantages and dangers. And what does it take to be profitable in this space? You need to be aware of these basic differences in order to understand the changing cryptocurrency society.

In this post, I will dive into the details of spot and futures trading, separate their main differences and also tell you how traders can use them in their own financial interests.

What is cryptocurrency futures trading?

Cryptocurrency futures trading is a derivatives trading model that allows traders to speculate on the future value of numerical assets without owning cryptocurrency. Instead, in order to purchase or sell cryptocurrency directly, traders enter into contracts in which they commit to purchase or sell assets according to a pre-specified value on a future date.

This type of trading is usually used by investors in order to hedge against cost doubts or to increase the possible income due to the result of plastic leverage. Almost all major exchanges give the sale of futures together with different levels of plastic leverage, which gives traders the opportunity to reveal the largest views in the presence of minimal initial investments. But the most significant plastic area in addition increases the threat, for this reason traders should apply appropriate risk management strategies.

What is spot trading?

Spot trading is an easier method in which two parties call to immediately buy and sell cryptocurrency according to the current market value. It is usually used for the purpose of instant transactions, if the target is considered to be the purchase according to a low value and the realization according to the most significant in order to make a profit.

Popular exchanges for cryptocurrency futures

According to the cryptocurrency aggregator website CoinGecko, the number of more popular platforms for the purpose of trading cryptocurrency derivatives includes:

• Binance: The largest cryptocurrency exchange in the society according to the size of sales besides accounted for $60.30 billion from the total size of bitcoin futures trading.

• ByBit: Despite the fact that for the purpose of the North American audience it is probably not as popular as Binance, ByBit joins the number of major cryptocurrency exchanges in the society and also gives 469 cryptocurrency futures. The size of sales on October 10, 2024 was $19.98 billion. According to the regulatory ratio ByBit is out of reach for the purpose of buyers from the United States of America.

• OKX: OKX offers 178 cryptocurrency futures. The sales size on October 10, 2024 was $21.15 billion.

• XT.COM: Another lesser known exchange XT.COM was formed in 2018 and offers 472 cryptocurrency futures. The sales size because of 24 minutes is $21.Fifteen billion and the public interest is $4.74 billion.

Benefits of Crypto Futures Trading

Futures trading has several advantages over classic spot trading, which makes it tempting for active traders:

• Profit in every trading session - In contrast to spot trading, where income is dependent on the increase in value, futures trading allows for short realizations, which gives traders the opportunity to gain income in rising as well as falling markets.

• Plastic area as well as cash performance - futures platforms give plastic area in the range of 5x to 100x, which allows traders to control the largest views along with the smallest amount of wealth. This gives the opportunity to maximize income, but in addition exposes traders to the highest risk.

• Liquidity as well as high trading volume - the main futures exchanges guarantee significant high liquidity, guaranteeing active execution of trades as well as the lowest cost penetration.

• Risk management and hedging - institutional traders as well as individual traders use futures contracts as a hedging device against volatility of value, protecting the portfolio from sudden market fluctuations.

• No need to own cryptocurrency - Since futures trading does not require the possession of real cryptocurrency, traders can avoid such difficulties as wallet security, storage and hacking risks.

Risks of spot trading

Risk management strategies in spot trading

As I all without exception see, practically with the whole existence there is an optimal as well as bad area, thus also in cryptocurrency trading. The following are many dangers associated with spot trading.

Market volatility: The price of cryptocurrencies is able to change significantly, which leads to possible losses. A typical example is the collapse of the FTX exchange, which led to a sudden drop in the direction of its native token $FTT.

Problems with liquidity: For the purpose of less known cryptocurrencies, finding a consumer or trader according to the necessary value can be difficult.

Risk and reward: In the presence of spot trading risk is limited to the amount of invested funds, and income is realized on the basis of practical movement of the value of cryptocurrency. Only the invested amount is subject to liquidation in case of insufficient activity of the asset. In this case, because the period of presence of futures trading the use of plastic leverage increases as well as possible encouragement, as well as a possible threat. Traders have all chances to get income from not very big price doubts, but in this case they risk getting pregnant with significant losses.

Market participation: In spot trading will take place mainly personal traders as well as investors seeking to acquire and also keep cryptocurrencies in the long-term possibility. In this case, the period as well as futures trading activity: Attracts the most experienced traders, including institutional traders and hedge funds, which use futures contracts for speculation and more fully hedging.

Trading strategies: Spot traders use similar well-known strategies, such as buy and hold (HODLing), dollar cost averaging (DCA) and arbitrage trading. On the other hand, futures traders apply similar strategies such as large as well as short views, spread trading as well as hedging.

Diversification: Spread your investments among certain cryptocurrencies in order to reduce risk

Safekeeping: Use hardware wallets like Ledger and other harmless solutions to protect your assets.

Research and Analysis: Do thorough research and study before making investment decisions.

Final thoughts

Cryptocurrency futures trading is a very interesting game with high stakes, in which traders have all the chances to make profits in bullish, as well as in bearish markets. However, the result is not only to catch the right operations, but also to choose the right platform.

There is no one-size-fits-all solution. The perfect platform is dependent on your risk tolerance, skill level and trading strategy. Are you a risk-averse trader who needs strong risk management features? Or are you an aggressive trader who needs an extreme plastic site? The right venue is the one that fits your goals.

Futures trading is associated with great abilities, but also with impressive risks. First of all, compared to going to trading, be sure to research the data, test it in demo accounts and also start together with the applicable plastic leverage. Want to learn more? Check out our detailed guides on risk management and trading strategies to sharpen your skills before your next big trade!

FAQ

Is spot trading better than futures?

This depends on your fuller as well as your risk tolerance. Spot trading is easier and also implies direct possession of promotions, which makes it optimal for beginners as well as long-term investors. Futures trading activity gives the most significant possible income due to the result of leverage, but is associated with a huge risk and complexity.

What are the disadvantages of futures trading?

Futures trading is associated together with similar risks, as well as margin call as well as elimination if you can lose more compared to your initial investment. Exactly what it will in addition require is an excellent comprehension of plastic leverage, financing rates as well as complex trading mechanisms.

Are futures more expensive than spot?

Yes, trading in futures usually involves the most expenses. These include trader's fees, financing rates for leveraged positions and possible losses on margin terms. Spot trading usually has the lowest transaction fees.

What are the disadvantages of spot trading?

Spot trading limits your ability to earn income by increasing the value of the asset. You cannot get income from downward price movements and you can also lose sight of the increase in income that is allowed when using futures leverage.