There are different ways to start trading in the cryptocurrency market, such as getting a cryptosignal, etc. If you are active in this market, you may be familiar with terms like margin, spot, and futures trading. Each of these trading markets offers specific features and characteristics to the trader. Margin and spot transactions are not so complex and complicated. So, in this article, we want to explain to you about spot trading and margin trading. Let’s take a look at the difference between spot trading and margin trading and teach you how to reduce the risk of margin trading.
What is spot trading?
In spot trading, you will receive digital currency for the money you pay on the exchange. In this transaction, you will be charged a fee. In this market you can invest as much as you have in the market. For example, suppose you invest $100 in the market and buy token X for $100. After some time, token X will reach the price of $130, and you will make a profit of $30. That’s how to lose in this market. This market does not allow investments above the balance. Spot trading is a very traditional type of trading and has a simple and logical method. All digital currency exchanges support such markets. However, the tools they offer to investors may be different.
What is margin trading?
Many economists consider margin trading to be a form of cryptocurrency betting. The extra money will be loaned to you by the seller or broker. This amount will be deducted after your position is closed. In such transactions, you are allowed to invest more than your margin and balance. In this case, you will gain or lose. If you made a profit, you will make a profit equal to the amount you borrowed and the principal of your money, and the loss will be the same. Leverage is one of the important components in this market. With leverage, you’ll know how much money you’ve borrowed from the exchange.
Difference between spot and margin trading
A seller in the spot market buys a digital asset directly in return for payment. These transactions are low risk and the trader becomes the owner of the asset. In the offshore market, the seller challenges himself by making dangerous trades. In fact, the higher the risk in the margin market, the higher the profit. It should be mentioned that profits and losses from margin market trading are estimated to be between 2 and 100 times. In this system, if you have correctly predicted the trend of the desired currency, you can return the money borrowed from the stock exchange with the profit.
Main difference between spot and margin transactions
Arguably, the main difference between trade and spread trading is that in spread trading there is a risk of loss and loss of the entire capital. In other words In this type of transaction You can borrow some money from the transaction and earn more profit if the transaction is successful. But you will probably lose all your money. In other words, there is no chance of losing the entire capital in spot trading, but there is a chance in margin trading.
Transactions in the financial markets can be done in two different ways, spot and margin, each trader can use any of these methods to get profit according to his ability, his level of risk taking and his experience. In this article, we have discussed the difference between spot and margin trading, the definition of each of them, the description of the margin call period, long term – short term and the method of reduction at the risk of trading on the side.
The difference between spot trading and margin trading is a very important and important difference. Therefore, there are basically two trading styles in the digital currency market. We can’t say for sure which style is better. However, in general, margin trading is riskier than trading. In spot transactions, in order to purchase the product, you must have the full amount in your account and pay the amount when purchasing the product. But in margin trading, you don’t need to have the entire amount in your account. In other words, you can put your initial capital as collateral on the stock market and borrow the rest of the required amount on the stock market. With margin trading, your chances of making a profit will be greater.
The main difference between spot and margin trading is that unlike margin trading, spot trading does not have a zero balance option. This means that you can experience huge losses, but your balance will never be zero. Many economists believe that margin trading has set the size of profits and losses and that this market should not be in principle.