This article will introduce the important concepts, trading types and precautions that must be understood before spot and future trading. Do not operate rashly without understanding, and avoid the investment risk of losing real money.
What is Crypto Spot Trading?
Spot trading is the purchase and sale of tokens and coins at the current market price (or "spot price") for the immediate delivery of the underlying asset. It is called "spot" because it refers to the act of trading and collecting the asset on the spot . On Spot Market, you have direct ownership of the crypto asset and have legal rights.
The X Exchange facilitates spot trading, enabling users to trade fiat-crypto assets and coin-coins. The spot trading platform acts as an intermediary for buyers and sellers to buy and sell crypto assets. When the buying and selling prices match, the trading platform facilitates the transaction. The spot trading platform is open 24 hours a day, 7 days a week, which means you can buy and sell crypto assets anytime, anywhere.
Given the instantaneous nature of spot trading, traders must have full funds to cover transaction fees. For example, if a trader wishes to buy $1,000 worth of Bitcoin (BTC) , they will need to have the full $1,000 in their account; otherwise, the trade will not be executed by the exchange or trading platform.
What is encrypted future trading?
Future trading is a type of financial derivative, which is a transaction relative to the Spot Market. Users can obtain the benefits of rising or falling prices by judging the ups and downs in futures trading, choosing to buy long or sell short contracts. In today's modern financial and crypto markets, futures can be used to gain risk exposure to changes in the price of the underlying asset without actually delivering the asset. Instead, the profit or loss generated by the transaction will be credited to the trader's account.
Due to the high volatility characteristics of trading with derivatives, traders must carefully manage risks, and be sure to understand the basics of Cryptocurrency contracts before investing. Potential traders must be familiar with the basic concepts to become an expert in Cryptocurrency contracts. Understanding these concepts can give you a better chance of becoming a professional trader.
What order types are available for spot & future trading
Spot Trade Order Types
1. Market Order
Place an order on the Market Order of the spot goods. If you want to place an order at the market price, you can click on the Handicap price on the right. The top is the sell order, and the bottom is the buy order. After clicking, you will place an order at the best price at that time.
2. Limit Order
A limit order is an order placed in the order book at a specific limit price. After placing a limit order, the transaction is only concluded when the market price reaches the limit price (or higher). Therefore, it is possible to buy at a lower price or sell at a price higher than the current market price through a limit order.
3. Take Profit Stop Loss
Set your own buying or selling price. The transaction will only be completed when the market price reaches the set price. If the market price does not reach the set price, the limit order will continue to wait for completion.
For example, when the price of a pending order to buy is higher than the current market price, it will be closed at the optimal market price; when the price of a pending order to sell is lower than the current market price, it will also be closed at the optimal market price.
Future Trading Order Type
1. Market Orders
The Market Order order of the contract is placed in the form of a eat order, and the order is immediately closed through the optimal market price, which means matching the existing price on the order book. Click on the contract interface to select the market price option. The handling fee of Market Order is higher than that of limit orders, and the timing is to save time and grasp the best price at the moment.
2. Limit Order
The ordinary order of the contract refers to placing an order at the price specified by the user, which is a limit order. Click Limit Price on the contract interface, the ordinary order below. In addition, if you click the market price to trade, but are not fully filled, it will be recorded in the order book to increase the market depth and wait for the transaction.
3. Limit Take Profit Stop Loss
Limit Take Profit Stop Loss is a conditional order within a set time frame. After reaching the specified stop price, it will be executed at the specified price. Once the stop price is reached, it will buy or sell at a price that meets or exceeds the limit price you set.
4. Market Take Profit Stop Loss
Similar to Stop Loss Limit Take Profit, Market Take Profit Stop uses the Stop Loss price as the trigger condition for the trade. However, when the Stop Loss price is reached, it will trigger the Market Order.
5. Trigger
Trigger order refers to the pre-set trigger conditions and the order price and quantity. When the latest transaction price in the market reaches the trigger condition, the system will place an order according to the order price and quantity set in advance.
How future transactions are conducted
Users decide the long-short direction based on their judgment of the BTC price trend and choose the contract type based on the length of time.
Long and Short Positions
Buying futures is called a long position, while selling futures is called a short position. Long positions profit when the market price of an asset is higher than the set price on the expiration date. They suffer losses when the market price is lower than the set price. On the other hand, short positions profit when the market price on the expiration date is lower than the set price, and short positions lose money when the market price is higher than the set price.
For example, suppose Trader A goes long at $1,300 on a Cryptocurrency futures contract with ETH as the underlying asset. The other side of the trade is Trader B who is short on the contract. For simplicity, we ignore the impact of margin and leverage.
Margin
Cryptocurrency futures are traded on margin, which means traders do not have to pay the full transaction fee themselves. Instead, a portion of the funds is borrowed from an exchange or trading platform. This allows for leverage, which can magnify gains, although losses may also be magnified. Traders may also face margin calls and forced liquidation.
Two typical ways to use margin are full position margin and position-by-position margin :
Full position margin
This allows traders to share margin balances between different positions, so excess margin (i.e. equity in excess of margin requirements) on one position can be used to cover margin shortfalls on another position. This may help prevent margin calls and/or forced liquidation of losing positions.
Position-by-position margin
This is the margin allocated to a single position and cannot be shared between different positions. Usually, traders may use this feature when they do not want the margin call for a single position to affect other assets in their portfolio.
Leverage
This refers to using borrowed funds to pay transaction fees. For example, if a trader wishes to buy $1,000 worth of Ethereum (ETH) with a leverage factor of 5 (i.e. a multiple of 5), they only need to pay $200 themselves and borrow the rest ($800) from the exchange or trading platform. In other words, the trader borrows money to increase the position by 5x. The value of the account balance minus the borrowed amount based on the current market price is called equity. The amount of leverage that can be used varies depending on the exchange and trading platform.
Position
After the transaction, the user holds the positioning corresponding to the long-short direction.
Users can also adjust positioning at any time according to market conditions, lock in profits or stop losses through position squaring, or continue to open positions to chase profits.
Let's look at an example of a margin call:
The trader purchased $1,000 worth of ETH using 5x leverage (i.e., they borrowed $800 and used $200 of Owned Fund). Subsequently, the price of ETH fell by 10%. Assuming the margin required by the exchange or trading platform is 15% of the account value, a Margin Call will occur because the asset level has fallen below the margin requirement level.
Traders will have to raise $35 by selling some ETH or putting in more of their own money to bring the asset back to the margin requirement. If they fail to meet the margin call, then the exchange or trading platform can force the sale of ETH in the account to help repay the loan.
Cryptocurrency Spot Trading: Advantages and Disadvantages
Compared to margin trading, the main benefit of spot trading is that it is simpler and does not involve the potential amplification of losses that margin can bring. It is simpler because traders do not have to deal with things like margin calls and deciding how much leverage to use. Also, in the absence of Margin Call, traders are not exposed to the risk of having to put in more Owned Funds and possibly losing more than the existing funds in their accounts.
The main drawback of spot trading is that it misses out on any potential return amplification that can come from using leverage, which we will discuss below.
Cryptocurrency Contract Trading: Advantages and Disadvantages
The biggest advantage of margin trading is that the use of leverage has the potential to amplify positive returns. Let's look at an example where a trader buys $1,000 worth of Ethereum (ETH) for $1,000 (i.e., they buy 1 ETH), and the price then rises by 10% to $1,100.
Here are the returns without leverage compared to leverage. In the leverage scenario, let's say a trader uses 5x leverage (i.e., they use $200 of Owned Fund and borrow another $800). 50% returns with leverage are higher than 10% without leverage.
However, leverage is a double-edged sword, as it can amplify negative returns while amplifying positive ones. Let's assume that the ETH price did not rise, but fell by 10% to $900. The -50% return with leverage is significantly lower than the -10% without leverage.
Another major disadvantage of margin trading is the risk of being Margin Called. As mentioned earlier, this can mean that traders need to deposit more Owned Funds into their accounts and risk losing more than they initially invested.
Future transaction risk
Forced position squaring
When one or more positions are forcibly positioned squaring when the margin to equity ratio of the account reaches a certain percentage (eg 50%). This is often referred to as "liquidated" or "positioning automatically liquidated".
Making a trading plan can effectively prevent investors from making impulsive decisions when facing the risk of loss. Some strategies help reduce the risk of contract market consolidation, such as simulated trading, formulating risk management strategies and setting stop loss orders.
Derivatives such as contracts allow traders to speculate on future asset prices. Many exchanges currently offer contract trading. Being proficient in the basics of contract trading can help you win big in this trade. Contract trading can be profitable if you have the right knowledge and risk management skills to avoid large losses. Therefore, you should develop a strategy, conduct due diligence, and understand their advantages and risks before trading contracts.
Risk and reward often go hand in hand, so contract trading may be an option for those who are willing and able to take more risk for potentially greater gains. For more traditional traders, spot trading may be less risky and simpler to execute.
About X Exchange
About X ExchangeX Exchange is a leading Web2.5 intelligent crypto asset trading platform. At X Exchange, we are committed to providing users with a more secure, efficient and convenient crypto asset trading experience through intelligent technology and Web2.5.
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