1. What is Spot Trading?
Spot trading involves buying or selling cryptocurrencies with immediate settlement, allowing for the exchange between two different cryptocurrencies and the actual ownership of the corresponding cryptocurrency.
2. What is Futures Trading?
Futures trading involves trading contracts that represent cryptocurrencies, rather than trading the cryptocurrencies themselves. Holding a contract means you will need to buy or sell the underlying cryptocurrency at a future date.
3. Differences Between Contract Trading and Spot Trading
1. Leverage:
- Spot Trading: Transactions are equivalent, meaning the trading funds are directly proportional to the traded asset. For example, if you want to buy 1 BTC at a price of 45,000 USDT, you need to have 45,000 USDT in spot trading.
- Futures Trading: Features leverage, allowing you to amplify your trading position with a smaller amount of capital. For instance, in the contract market, you can use 100x leverage to buy 1 BTC with only 450 USDT as margin.
- Note:Using leverage in contract trading increases both capital efficiency and potential risk. The higher the leverage, the greater the risk.
2. Long and Short Positions:
- Spot Trading: You can only go long (buy) in spot trading. Profits are earned only if the asset price increases.
- Futures Trading: Supports both long (buy) and short (sell) positions. You can profit by predicting price movements in either direction:
- Long Position: Profits from an increase in the price of the underlying asset.
- Short Position:Profits from a decrease in the price of the underlying asset.
- Note:Investors often use contract trading to hedge against price volatility in the spot market or to profit directly from price movements in the contract market.