What is spot trading in cryptocurrency?

Spot trading in cryptocurrency markets is a lucrative tool to earn money on investments and capital. You can participate in the cryptocurrency economy and try out different strategies. Whether they bring you income depends only on your decisions, so we suggest you learn more first. We tell you what is a spot trade and how exactly you can succeed.

We don’t need to be smarter than the rest of the world. We need to be more disciplined than the rest of them

Warren Buffett

What is a spot trade?

The main feature of spot trading is the ability to fulfill the obligations of sellers and buyers instantly. At the same time, futures contracts can only offer delayed execution. This complicates the investor’s control of operations and requires a greater understanding of the market and its peculiarities.

Our experts point out several important aspects to understand in order to answer the question of what is a spot trade.

Here are the main points:

• immediate execution. Both selling and buying are instantaneous from the moment your order is executed;
• value. The main advantage of spot is that the price is determined based on actual market supply and demand. It is very easy to figure out;
• availability. In contrast to futures on the spot, you can trade almost any cryptocurrency, which is represented on popular exchanges and sites;
• simplicity. The spot market is often presented as the easiest and most accessible way for beginners to start working with cryptocurrencies. All thanks to this simplicity of transactions, the absence of pending contracts, and other complex mechanics.

Modern spot trading is a convenient tool for investors who want to enter the market and not face a lot of complexities. Such a market allows for liquidity and dynamics, which means you can succeed and form your strategy. It is necessary to start working and learning all the possibilities of the tool to learn how to make the right decisions and make profits.

Find out why people trade in spot (cash) markets

First, what is a spot trade question appears because of the large number of investors and traders who use this very instrument in the market. Attractiveness is born because of the possibility of earning large sums of money safely or more risky without complicated schemes. The short answer is the simplicity of using the instrument.

The longer one is for the following reasons:

• management. Due to the instrument’s availability, each trader can instantly react to the price change on the market. High liquidity will allow you to open a deal at any moment;
• conditions. Thanks to the transparent terms and conditions, it will be easy for beginners to understand the execution of transactions. All thanks to the prices determined only by supply and demand when triggering the order. You will not have to make too complex calculations or hope for compliance with all conditions;
• flexibility of strategies. An important advantage of the cash market instrument is the large number of different trading strategies that investors apply. Some prefer long-term investments with thinking over every detail, while others like creating dozens of daily trades. Even very small fluctuations can be profitable if you use them correctly;
• simplicity. You can not limit yourself in the choice of assets because almost all popular coins are represented;
• complete control. Derivatives and CFDs remain interesting instruments that can bring you success. But in controlling your assets, there is nothing better than a classic spot. You will fully own the cryptocurrencies you buy and can freely dispose of them at any time of the day or night;
• lack of complex mechanics. Usually, classic spot trading strategies will not involve leverage, borrowed funds, or margin trading. Due to this, the potential profit from the transaction falls, but the risks also fall;
• high liquidity. It is easiest to enter and exit a position in cash markets. High liquidity will allow you to end your activity instantly or open a new trade.

Due to these advantages, spot wallet for trading wants to start as soon as possible for a wide range of users in the field of cryptocurrency. Moreover, both beginners who are just starting their journey and professionals who want to expand their market opportunities can use the tool profitably.

How spot markets work

The question of what is a spot trade is much more profound than it seems. You can only be successful with the most complex and profitable strategies if you learn your trading platform well. Sellers and buyers create an environment where trades are executed instantly at the correct value.

Here are six key aspects you need to understand before you start spot trading:

• opening. You must first open a purchase order. You can do this instantly or pending, depending on the price you are satisfied with;
• juxtaposition. The Exchange constantly compares buy and sell orders. If there are matches, they are executed;
• price. The cost is formed based on each transaction carried out. The more of them will be closed in a certain direction, the more the price will change;
• immediate transfer of assets. Cryptocurrencies move between sellers and buyers instantly. There is no delay here as there is when dealing with derivatives markets;
• the role of your exchange. Choosing a reliable platform to trade on is important because it will be responsible for storing assets, matching orders, and executing them promptly. Due to this, you may also have various tools open or closed to analyze assets;
• trading commissions. Executing trades on the exchange side will require payment of a commission, which is most often charged instantly and depends on your trading volume. Sometimes, the commission can be reduced if you achieve high performance and increase the volume of your trades.

Thus, trading spot remains the most important element of the entire ecosystem of cryptocurrency markets, which must remain accessible, dynamic, and liquid. The peculiarities of trading spots allow you to react instantly to changes in price and execute necessary trades quickly and without additional problems.

The way to make profits in the long run is through capital preservation and good decisions

Stanley Drakenmiller

Advantages of spot trading in cryptocurrencies

Thanks to the unique trading tools and the ability to execute orders without delays, more and more investors and traders are interested in the question of what is a spot trade. All thanks to a large number of advantages that are lined up due to the peculiarities of the markets and the instruments used. This allows even users without much experience to start their first trades and finish them with a relatively high success rate.

Simplicity

An important aspect of spot trading remains the simplicity with which every willing market participant can start trading. Doing so lowers the entry threshold into the field, and more people can try out their skills in a real-world environment. This will make it easier for you to achieve the necessary results and decide to start such activities.

Transactions are greatly facilitated by using the current market price at the time of sale. It is this fact of trading that is influenced by a large number of different features:

• you don’t need specialized knowledge. First, you will need a basic knowledge of how trading generally happens. Thanks to this, you will be able to start benefiting and make proper use of the tools offered;
• you directly own your assets. This allows traders to simplify their strategies and make them more risk tolerant. Derivative instruments are often considered more dangerous in terms of potential capital loss;
• predictability and transparency of trades. Pricing in the market becomes clear and understandable because supply and demand at a given time influence the asset’s actual value.

This will allow you to spend less time analyzing complex strategies or fulfilling all conditions. Even an investor with no experience can handle this tool.

Affordability

Another important advantage that makes spot crypto an attractive and lucrative earning tool. A stable internet connection is enough to register on the exchange and start investing.

Here are a few important advantages:

• low entry threshold. You can start even with minimal capital because the exchanges practically do not limit the first transaction amount. Due to this, everyone can try out the tool and their capabilities;
• choice of platforms. A large number of exchanges and platforms are presented, which will allow you to take advantage of earning tools and start trading. Traders can choose only those companies that can offer security, speed of operation, and relevance of information;
• ease of registration. In most cases, you will encounter a user-friendly interface, a simple account creation procedure, and quick funding or transferring cryptocurrencies from your cold wallets.

Here is a small comparison of futures and spot trading, which our experts have tabulated.

The spot market remains accessible and understandable, thus in demand among many investors. You don’t have to be a professional to understand all the available tools.

Lower risk compared to many other cryptocurrency trading strategies

In most cases, cryptocurrency trading is considered a riskier type of investment than classic stocks. But even in this field, different instruments are categorized according to their actual risk and the market features used. The main advantage in terms of risks is the absence of leverage, which significantly increases the chance of beginners losing part of their capital.

Here are a few important factors that affect risk mitigation:

• owning your assets. It is much easier to control your investments when they are made right now, not in the future;
• transparency of transactions. Transactions are conducted openly on the exchange, at current prices, and without further obligation to sell or buy. This makes it more likely to predict the outcome of your trades correctly;
• absence of leverage. Using only your funds is always less risky than borrowing. Even leverage of x5 will lead to the fact that if the value of an asset changes by 20% in the wrong direction, you will lose all your capital. And that’s not even considering commissions, which will further reduce your window for completing the trade.

It is important to research what is a spot contract as soon as possible. It may help you learn to assess risks and take advantage of market opportunities.

In this business, if you’re good, you’re right six times out of ten. You’ll never be right nine times out of ten.

Peter Lynch

Risks of cryptocurrency trading

Investing remains a complex area that requires careful attention and work with data. Therefore, it is necessary to consider both the benefits and potential risks when starting. This will allow you to be proactive and generate income even in crises. This will allow you to prepare, learn more about what is a spot trade and get closer to achieving your goals.

Market volatility

The main problem and, simultaneously, a boon of cryptocurrency trading remains the relatively high market volatility. The price fluctuates within a certain range daily and sometimes hourly. Due to such peculiarities of the market, an investor can earn even on speculative deals. During a short period, the value of an asset can change many times in both directions. Catch a suitable window, accept possible risks, and make money.

Volatility can depend on many factors, among which we can also mention these:

• the market is still young. Even spot market definition appeared not so long ago, so at the moment, trading instruments are not so stable, especially when compared to traditional financial investments;
• speculativeness. Many traders try to make money on ultra-short trades that take only a few minutes. Because of this, the price starts to fluctuate even more;
• the influence of news. Various reports of hacking attacks, increased regulation, or other asset-related moments can lead to significant fluctuations.

You can reduce your risks due to volatility by trying one of several popular strategies. Among them:

• portfolio diversification. Learn to allocate your investments among different assets so that when some fall in value, others compensate for it with their growth. Most often take high-risk assets at the same time along with those that are considered conservative;
• use of stop-losses. Use the classic function of stopping trades when the price limit is reached. Thanks to this, you will be able to limit the maximum level of losses from the transaction;
• analyzing trades. It is necessary to make decisions about transactions in an informed manner. Acts by his strategy.

Spot trading remains an attractive option that allows you to react quickly to changes and capitalize on your own decisions.

Lack of liquidity

Liquidity may also be lacking due to the underdeveloped market. It often happens on small trading floors, where traders do not have much activity. It is impossible to open or close your trades without liquidity.

Here are some ways to deal with this situation:

• platform selection. Exchanges with high trading volumes are best, where your orders will not have a significant impact on the price;
• limiting position size. Large buy or sell orders are better broken down into smaller orders so that they don’t affect the price significantly;
• flexibility in trading. You should adjust your profitability expectations to real market conditions when order execution prices may not reach the desired values.

Doing so lets you maintain liquidity and manage your assets without problems, even when the market is not large enough. For all these reasons, you need to understand what is a spot trade as soon as possible. This will allow an investor to manage his capital more effectively and a trader to realize even complex deals successfully. Probably after all the above information you will be able to understand what is a spot trade. 

Trading platform

Your spot exchange must be reliable to make it easier for you to work and achieve your goals. Doubtful trading platforms are unsuitable for such activities, and you should not trust them with assets. You should heed a few recommendations on how to choose one:

• security. Protecting users’ funds and personal information should come first;
• interface. The easier it is to understand the management of your assets, the better for the trader;
• commissions. Commission fees can affect the ability to create speculative short trades.

Find out as much information as you can about the marketplace.

How to trade cryptocurrency safely?

The user’s main task remains to learn how to work safely, quickly, and efficiently. By learning what is a spot trade, you can bring your performance closer to what you predict. High volatility and the impact of even small news events can complicate your work.

You can minimize your risks in a few basic ways:

• education. Study the market, functionality, and new trends to understand where the chart is headed;
• capital. Don’t use money you’re not prepared to lose. You can’t hurt yourself or those around you;
• diversification. Make a competent distribution of funds between conservative, profitable, and risky assets;
• stop requests. Thanks to them, you will be able to lock in a loss and not pull your portfolio down further;
• choosing a reliable exchange. Trust your assets only to companies with an excellent reputation and care about the safety of users.

You should strive in every way possible to achieve your investment goal. By following these guidelines, you can reduce the chance of failure.

Spot Trading: Final Thoughts

First, such trading is characterized by a unique combination of accessibility, instant reaction to the market, and flexibility of the strategies used. Despite the advantages, it is important to consider the potential risks and possible liquidity problems, which you must compensate for by making the right decisions.

Now you know what is a spot trade and will be able to make your own decision whether to start your activity with this instrument or not. In the end, you will know both the pros and cons. We recommend that you take great care in choosing a trading platform and properly building your risk management. Your continuous learning remains the key to spot trading and profit-making success. Try it now!

Author’s opinion

Evans Kian

Many specialists, analysts, and traders directly related to spot asset trading worked on the writing of this article. We find the tool’s possibilities impressive and attractive for a wide audience. There are no overly complicated schemes or the need to stay in a long waiting period and consider many factors. At this point, anyone is welcome to try out and register.

A flexible and useful tool will allow you to get started even without experience. Therefore, it is worth a try.