Module 4.0.0. Two Kinds of Crypto Trading
If you want to be a trader, you need to understand that there are two kinds of crypto trading:
(1). Spot Trading
This is the traditional type of trading. It is the process of buying and selling digital assets such as Bitcoin and Ethereum for immediate delivery. In other words, in spot trading cryptocurrencies are directly transferred between market participants (buyers and sellers).
In a spot market, you have direct ownership of the cryptocurrencies you are trading with. A spot market is where commodities, currencies, stocks, and bonds are traded with instantaneous delivery.
Centralized exchanges such as Binance facilitate spot trading activities, enabling traders to conduct fiat-to-crypto and crypto-to-crypto transactions.
For example, if you want to buy Bitcoin with dollars, you put in the amount of Bitcoin and at what price you want to buy. You then submit your bid, which goes into the order book, looking for a selling price that matches your purchase bid. Once there is a match, the transaction is sealed; you will receive the Bitcoin while the seller receives the dollars.
Thus, exchanges that have spot markets act as intermediaries for buyers and sellers to bid and ask for a crypto asset. Spot markets of cryptos operate 24 hours a day, 7 days a week, which means you can buy and sell crypto any time and at any day.
(2). Futures Trading
Futures, which is the most common type of Derivatives Trading in the Crypto Market, represent an agreement (contract) to buy or sell a specific quantity of a crypto at a set price on a certain date in the future.
If you expect the value of a crypto to go up, you will buy a futures contract to go long, and if you expect it to fall, you will sell to go short. Your profit or loss will depend on the outcome of your prediction.
Thus, futures trading is speculative trading, and it is facilitated by exchanges just like with spot trading. In the futures market, you are trading contracts that represent the value of a specific cryptocurrency. A futures market settles the delivery of its contracts on a predetermined future date.
Virtually all exchanges offer spot trading, but not all offer futures trading. Just like spot markets, futures markets are open 24 hours every day of the year.
While futures have been in existence for almost 100 years, crypto futures trading began recently towards the end of 2017. It is a new way for people to invest in the Crypto Market. With nearly 10 000 tradeable cryptocurrencies, crypto trading is proving that it’s here to stay.