14 December 2022 | ZebPay Trade-Desk
Intro to Crypto Trading
Since their inception, crypto assets have experienced rapid growth and widespread market acceptance, as evidenced by crypto-linked assets that have started appearing in the portfolios and trading methodologies of numerous wealth managers. The process of buying and selling crypto assets to make a profit is known as crypto trading. Crypto trading can be defined in terms of its objective, how it works, and its approach. The way crypto assets are traded depends on the type of transaction, such as Futures, Options or Perpetual contracts transacted in the market.
How Does Spot Trading Work?
A crypto investor’s trading strategy establishes a set of predetermined guidelines for buying and selling on crypto exchanges. One of the basic trading methods for investing in crypto is spot trading, where traders buy assets on the spot hoping to sell them at a higher price in the future.
The marketplace where crypto belongings are exchanged and settled is called a gap marketplace, and buying and selling on this marketplace consists of shopping for virtual assets like Bitcoin or other Altcoins and hodling them till their price rises. It is referred to as spot buying and selling because the transactions are settled “at the spot.”
Furthermore, spot markets encompass dealers, customers and order books. Sellers make an order with a selected ask or fee, and customers place an order for any crypto token with a selected bid or buy fee. The bid fee is the best fee that a purchaser is prepared to pay, and the ask fee is the fee that a vendor is inclined to accept as payment.
What Does an Order Book Contain?
The order book has two sides. The ask facet is for customers keen to shop, and the bid facet is for dealers who want to sell. The order book records the bids and asks.
For instance, in spot buying and selling, if Bob makes an order to buy BTC, this transaction will right away visit the bid facet of the order book. When a vendor from the crypto spot buying and selling platform is promoting on equal specifications, this order is mechanically filled. The orders in green in the order book replicate the purchase of customers of a selected token, whilst the orders in crimson constitute the seller of that token.
Components of a Spot Trade
The goal of spot trading is to buy low and sell high to make a profit, but it is not certain that this tactic is always to traders’ advantage given the volatility of the crypto market. Spot price, trade date and settlement date are the three key concepts in spot trading. The current price of an asset is known as the spot price, and traders can immediately sell the assets at that price. Also, you can buy or sell crypto with other users on different exchanges.
The spot price changes as new orders are placed and old ones are filled. The trade date initiates and records the transaction and represents the day the market executes the transaction. The assets involved in the transaction are transferred on the settlement date, also known as the spot date. Depending on the type of market in which one is trading, there may be one or more days between the trade date and the settlement date. For crypto assets, this usually happens on the same day, although it may vary depending on the exchange or trading platform.
A market order on an exchange allows traders to buy or sell assets at the best available spot price. A spot market will typically offer a variety of currencies including BTC, Ether, BNB and even fiat. There are numerous methods of buying and selling on many crypto exchanges, and spot traders often use a variety of fundamental and technical analysis approaches to make trading decisions.
One can spot-trade on centralized exchanges, decentralized exchanges (DEXs) or over-the-counter (OTC) markets. You must first fund your account with the fiat you want to use on a centralised exchange. Centralised exchanges often charge fees for listings, trades, and other trading activities. DEXs use blockchain technology to match buy and sell orders, and spot-crypto trading strategies can be executed directly from a trader’s wallet thanks to smart contracts. Trading can be done directly on OTC platforms through brokers executing trades on behalf of their clients.
How Does Spot Trading Differ From Margin Trading?
When you buy an asset at the spot rate, you become the owner of the asset, allowing traders to sell it or move it to an offline location at their discretion. Additionally, spot trading allows traders to use their crypto assets for additional functions such as online payments. Moreover, spot trading is significantly less risky than margin trading.
As opposed to margin trading, in spot trading, the trader does not risk using more of their own money or losing more money than they already have in their account because there are no margin calls. The disadvantage of spot trading is that it does not offer the benefit of a potential performance boost that leverage in margin trading might offer. Due to the lack of leverage, the potential profits in the spot market are lower than in margin trading.
Read more: Futures Trading Vs Margin Trading
As mentioned earlier, spot transactions are processed instantly for immediate delivery. However, contracts in the futures market are paid for at a later date when the buyer and seller agree to exchange a specified number of items at a specific price.
|Spot Trading||Futures Trading|
|Investment Strategy||Traders buy assets and hold them to sell later date when the price of asset under consideration rises||Traders agree to buy or sell crypto assets at a predetermined price and at a set date|
|Purpose||Taking control of the assets immediately||Hedge the risk position|
|Investment principle||Buy low sell high||Go long or short|
Disclaimer : This report is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The Company has prepared this report based on information available to it, including information derived from public sources that have not been independently verified. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. This report is preliminary and subject to change; the Company undertakes no obligation to update or revise the reports to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Trading & Investments in cryptos viz. Bitcoin, Bitcoin Cash, Ethereum etc.are very speculative and are subject to market risks. The analysis by Author is for informational purposes only and should not be treated as investment advice.