What is crypto spot trading? How does crypto spot trading work?

Dec 13,2022
What is crypto spot trading? How does crypto spot trading work?

What is crypto spot trading? How does crypto spot trading work? In the spot market, traders can immediately convert their cryptocurrency into fiat currency or another cryptocurrency by placing a purchase or sale order. Since its birth, cryptocurrency has achieved rapid growth and wide market adoption, as evidenced by the emergence of crypto asset related assets in the portfolios and trading methods of many asset management companies. The process of buying and selling cryptocurrency for profit is called cryptocurrency transaction. Cryptocurrency transactions can be defined according to their objectives, operation modes and transaction methods. For example, the exchanged asset, or cryptocurrency, is the target of cryptocurrency transactions. The way cryptocurrencies are traded depends on the type of transaction, such as futures, options or perpetual contracts that occur in the market. The investor's cryptocurrency trading strategy specifies a set of pre-determined guidelines for trading on cryptocurrency exchanges. One of the basic trading methods for investing in cryptocurrencies is spot trading, where traders buy assets and hope to sell them at a higher price in the future.

What is crypto spot trading?

The goal of spot trading is to buy low and sell high to make a profit. However, considering the volatility of the encryption market, it is uncertain whether this strategy will always be beneficial to traders.

Spot price, trading date and settlement date are the three most important concepts in spot trading. The current price of any asset is called the spot price, and the trader can immediately sell the asset under consideration at that price. In addition, people can buy and sell cryptocurrencies with other users on various trading platforms.

The spot price changes with the release of new orders and the transaction of old orders. The transaction is initiated and recorded on the transaction date, representing the actual transaction date of the market. The assets involved in the transaction are actually transferred on the settlement date, that is, on the spot.

Depending on the type of trading market, there may be one or more days between the trading date and the settlement date. For cryptocurrencies, it usually occurs on the same day, although it may vary from exchange to exchange or trading platform.

How does cryptocurrency spot trading work?

Exchange market orders allow traders to buy or sell assets at the best spot price. The spot market usually provides a variety of currencies, including BTC, Ether shares down $1252, Moneysafe shares down $285 or even fiat currency. Many cryptocurrency exchanges have a variety of methods for buying and selling coins, and spot traders often use various fundamental and technical analysis methods to make trading decisions.

People can conduct spot trading in centralized exchanges, decentralized exchanges (DEX) or over-the-counter (OTC) markets. Before you can use the centralized exchange, you must first use the cryptocurrency you want to trade to inject capital into your account. In a centralized exchange, fees are usually levied for listing, trading and other trading activities.

DEX uses blockchain technology to match purchase and sales orders, and thanks to smart contracts, cryptocurrency spot trading strategies can be directly completed from the traders' wallets. Transactions can be conducted directly on OTC trading platforms, or through brokers who execute transactions on behalf of customers, or even by phone in the Internet era.

Advantages and disadvantages of cryptocurrency spot trading

When you buy assets at the spot price, a person really becomes the asset owner, allowing traders to sell or transfer them to their favorite offline storage. In addition, spot trading enables traders to use their cryptocurrency assets for additional functions such as online payment or mortgage.

In addition, the risk of spot trading is far lower than that of margin trading, that is, people can invest in crypto assets without worrying about losing funds due to price changes and handling margin call notices. Therefore, since there is no margin call notice, the trader will not take the risk of investing more capital or losing more capital than the existing capital in the account.

However, the biggest disadvantage of spot trading is that it does not provide the advantage of any potential return amplification that margin trading leverage may provide. In addition, due to the lack of leverage, the potential yield of the spot market is lower than that of margin trading.

How to find transaction cryptocurrency on Binance?

After creating a currency security account, it is a simple process to conduct spot transactions on the platform. The spot transaction cost of BTC and BUSD for cryptocurrency on Binance is 0%. The procedures for spot transactions on Coin Security are as follows:

On the currency security website, select "Transaction", and then select "Spot" to access the spot trading platform.

The transaction view interface contains some exciting elements that you can now see.

The top shows cryptocurrency trading pairs and other market data, such as daily price changes and trading volumes.

All open sales and purchase orders for the asset are listed in the order book, sorted by price. You can customize historical price data in this chart view. TradeView has been included in the window, providing access to comprehensive technical analysis tools.

You can search different transaction pairs in the upper right corner. By clicking on the small star, you can save your favorite cryptocurrency pair and select the cryptocurrency pair you want to trade in the spot market.

A person's purchase or sale order will be created in this section. They can choose from various order types: limit order, market order and stop loss limit order to conduct spot trading.

Spot trading and futures trading

Spot transactions are carried out immediately for immediate delivery. However, when the buyer and the seller agree to exchange a specified amount of goods at this price, the contract in the futures market will be paid later. The buyer and seller usually reach a financial settlement after the contract expires on the settlement date, instead of handing over the assets.

Spot trading and margin trading

Day traders open short-term transactions with low difference and no maturity date in spot transactions to quickly deliver the underlying assets. The difference between the quoted price (buy) and quoted price (sell) of asset quotation is called transaction spread.

On the other hand, margin trading allows traders to obtain larger positions by borrowing money from third-party interest rates, thereby potentially obtaining considerable gains. However, care must be taken not to lose all initial investments, as it also amplifies any potential losses.

Speaking of this, I believe you have a certain understanding of what crypto spot trading is and how it works. Generally speaking, traders usually adopt the dollar cost averaging strategy to wait for the next bull market to profit from spot trading. However, the rewards come at the cost of patience, and nothing can be achieved immediately in the volatile encryption market. In addition, before trading any encrypted assets or using the spot trading strategy, it is wise to conduct due diligence and risk management to avoid losses. Each investor has a different risk return rate. Given the highly volatile cryptocurrency market, people should weigh the advantages and disadvantages of the trading strategy they choose. This means that traders must be cautious when deciding which assets to trade, and must master the market before starting.