What Is Spot?
In trading, spot refers to a contract or transaction involving a cryptocurrency’s immediate purchase or sale, with settlement and delivery taking place immediately.
It is commonly used to describe buying and selling cryptocurrencies in the market.
Spot trading is considered the simplest way to invest in cryptocurrencies, as it involves directly acquiring and possessing digital assets.
What Is Spot Trading in Crypto?
Spot trading in crypto refers to exchanging one currency, fiat or cryptocurrency, for another currency in the current market.
Spot traders purchase digital assets and gain ownership and possession of them.
They are limited by the amount of capital they have and cannot invest more than their available funds.
This differs from margin trading, where traders use borrowed funds to trade larger positions.
Spot traders are not subject to forced selling since their maximum risk is the cryptocurrency becoming worthless.
How Does Spot Trading in Crypto Work?
Spot traders aim to make profits by taking advantage of rising cryptocurrency prices.
They typically follow a straightforward strategy of buying crypto assets at perceived low prices and selling them later at a higher price to generate a profit.
Dollar-cost averaging is a common strategy employed by spot traders to systematically accumulate assets and take profits over time.
Spot Trading and Futures Trading
Spot trading involves the direct purchase of crypto assets using other assets. Spot traders cannot invest more than the capital they have available.
On the other hand, futures trading involves buying the right to purchase crypto assets at a specified future date.
In perpetual futures trading, this right is extended indefinitely, making it speculation on price direction without actual delivery of the underlying crypto asset.
Futures traders can utilize leverage to trade more prominent positions than their initial investment but also face the risk of liquidation.