Spot trading involves buying actual crypto assets at current prices with your own funds. Meanwhile, futures trading deals with contracts that predict future prices, allowing profit from both rising and falling markets.
When you trade crypto, you usually have two main options: spot trading or futures trading. They both involve buying and selling assets, but the way they work and the risks involved are very different.
Spot trading is the simplest and most straightforward way to trade crypto. You can either buy or sell crypto at its current market price using the money you already have in your wallet. Once you buy crypto, you own it right away. You can keep it in your account, transfer it to another wallet, or trade it.
Futures trading is a more advanced type of trading where you don’t actually buy or sell the cryptocurrency itself. Instead, you’re trading a contract that represents the future price of a crypto asset. This means you’re making a prediction about where the price is going, and you make a profit or loss based on whether you’re right.
In futures trading, you can take two types of positions:
One major difference between spot and futures trading is leverage. Leverage means borrowing money from the exchange so you can make trades that are much larger than the amount you actually have in your account. For example, if you use 10x leverage, your $100 can be used to open a trade worth $1,000.
If you apply a lot of leverage, you can earn a bigger profit if the trade goes well. But you also risk losing more if the market is not in your favor. And if the losses reach a certain point, the exchange might automatically close your trade to protect the borrowed funds. When that happens, you could lose all of the money you originally invested.
Because of the risk involved, leverage should be used carefully. Although it can boost your profits, it also increases the chances of losing money very quickly.
Ownership
In spot trading, when you buy a cryptocurrency, you actually own it. It’s stored in your account, and you can hold it, transfer it, or sell it anytime you like. With futures trading, you don’t own the asset itself. Instead, you’re just trading contracts that represent its price, and you can’t withdraw or use the crypto until you actually trade the asset itself.
Risk
Spot trading is considered safer because you’re only using your own funds, and there’s no risk of getting all your funds liquidated. The value of your crypto might go down, but you won’t lose more than what you spent.
Futures trading, on the other hand, comes with higher risk because you’re only speculating about the price of the asset in the future. Applying leverage also increases the risk, since even small price movements can lead to big losses.
Since futures trading is more complex, it is generally recommended for more experienced traders. It is better for beginners to start with spot trading to learn the basics before exploring more advanced strategies.
Purpose
Spot trading is typically used for buying and holding cryptocurrencies over the long term. You purchase the actual coins and keep them in your account, either to make another trade, make purchases, or wait for their value to increase over time.
Futures trading, on the other hand, is more commonly used by traders who want to speculate on short-term price movements. Instead of waiting for an asset to gain value over time, futures traders try to profit from both rising and falling prices.
Another major purpose of futures trading is hedging, a strategy used to protect an existing investment from market risks. For example, if you own crypto and you’re worried that its price might drop, you could open a short position. Even if the price falls, the profits from your short position can help offset the losses from your spot holdings.
For both spot and futures trading, it’s best to choose a user-friendly crypto exchange that offers high liquidity, such as MEXC.
One of the leading crypto exchanges right now, MEXC offers low fees, high security, and a wide selection of tokens and futures products, all in a streamlined and easy-to-navigate interface.
Understanding the strengths and risks of both spot and futures trading gives you more control over your crypto strategy. Seasoned traders often use a mix of the two, and having access to both options through a reliable trading platform lets you adapt to changing markets and safeguard your portfolio. The key is knowing when to use each and managing risk every step of the way.
