Spot Trading and Margin Trading homework of @besticofindeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeer is Spot Trading and Margin Trading. I will explain these two terms in detail one by one. I will compare it later. I will explain the risks and disadvantages.
When you log into a centralized or decentralized exchange, you will see the place where it says "Spot Trading". There are cryptocurrencies in this section and you trade there.
An image of the mxc.com exchange . As you can see in the picture, there are buy and sell sections. The first step in Spot Trading is buying. Then comes the sale. If you first buy a product and then sell it when the product you buy rises, you will make a profit. This is what we call Spot Trading. In spot trade, your main target is to increase the price of the product. If the product you buy does not increase, you will suffer and it is a situation that nobody wants.
Margin trade is a trade that not many people use. It is a risky trading method and not very popular. When you enter some exchanges, you have seen the parts called Margin Trading. This is where Margin trading is done. This type of trading is done according to various commissions and leverage on exchanges such as Binance, FTX, BitMex, eToro, Bithoven, Kraken, Gate.io, Poloniex, Bitfinex.
Margin trading is a very comprehensive trade. You earn profit even if the product you set in Margin trade drops or rises. For this, you need to determine a good position. Therefore, the risk ratio is very high. You instantly zero out all your money.
Spot Trade Details
In spot trading you buy any cryptocurrency or commodity. This would be a spot trade. You have the opportunity to buy as much as your money in spot trading. You cannot get more. After you buy crypto money, the crypto money you receive should increase in order to make a profit. This is the only requirement. If the crypto money you bought does not rise, it is not possible to make a profit. I do my spot trading in many exchanges, I do not trade in a single exchange. How to do Spot Trading. I'm starting to analyze now. First, we log into our stock exchange. Then, if our exchange accepts real money, we deposit real money. If it does not accept real money, we have to deposit cryptocurrency. After making the investment, we enter the buy-sell section from the stock market. When you enter here, there are usually graphs about crypto money in the middle section. On the left or right, there is the part where the buy-sell values of the crypto currency are. To do our first action, we enter the section where it says buy. Here I write the price of the crypto money we will buy and how many we will buy. For example ADA. Like $ 1.25 and 1000 pieces. Later, if the ADA price rises above the price we have received, for example, if 1.50 $ and we sell 1000 ADA we have, we will make approximately $ 250 profit if we do not count the commission that the exchange will receive from us. Because we paid 1250 $ while buying, and we earned 1500 $ while selling. We have the risk of making losses in spot trading. Suppose we get ADA at $ 1.50. Let's get 1000 ADA. If we buy ADA at a lower price than we bought it, we would be at a loss. We paid 1500 $ for 1000 units of ADA. Suppose we sell for $ 1.25 when selling. We earn $ 1250. As a result, we would have lost $ 250.
Spot trading does not have much risk compared to Margin trading. Because your chances of losing all of the crypto money in your account are low. You can hurt, but this is like 10%, 30%. The disadvantage of spot trading is this. It is difficult to earn a profit in a period dominated by the bear market. Because in the bear period, the direction of the market tends to decrease. It is difficult for prices to rise in the period of downward trend and in this period, you are likely to lose.
Margin Trade Details
Margin trade can actually be compared to a credit trading system. We do not have a chance to own any cryptocurrency in Margin trading as in Spot trading. It is the contract purchased there. Leverage is also used on contracts. What we call margin trading are actually leveraged transactions. Transactions in an upward state are called LONG. Transactions in decline are called SHORT. The most important part of margin trading is the ability to trade double-sided. We can trade for both a bearish and an uptrend. It is possible to take the SHORT position and open a transaction for a crypto currency that I believe will fall or is in a downward trend. Let's say that if we think that BTC will fall and if we open a 10% SHOR position for BTC, if BTC also falls 10%, we will earn from here. There is actually leverage involved. If our leverage is 2x, we get 20% profit. Of course, if what we expect does not happen, we lose 10%, if our leverage is 2x, we lose 20%. Let's say we have $ 1000. If we open a 5x trade, we will buy a $ 5000 contract. If we earn 10% on this purchase, we will earn $ 500. If we lose 10%, we will lose $ 500. There are systems with up to 100x leverage on exchanges. Of course, I do not recommend these with high risks.
Now I want to give a little more detail. Let's say I want to long Bitcoin with 5x leverage. Now I want to give some more details. Let's say I want to long with 5x leverage Bitcoin. If the percentage I set when I use 5x leverage is 10%, there is a 50% profit or loss situation here. If Bitcoin increases by 10% I would have made 50% profit. Conversely, if Bitcoin falls by 10%, I will lose 50%. As you can see, both the loss rate and the evasion rate are quite high.
On the contrary, this time I want to open the SHORT position. My leverage trade is 5x. If Bitcoin drops 10%, I will make a 50% profit. On the other hand, if Bitcoin rises 10%, I would lose 50%.
As you can see, Margin trading is a very risky way of trading. However, you have a healthy way of trading both during the bear period and the bull period. You open the short operation in the bear period and the long operation in the bull period. We have a chance to open trades for both the bearish and the upward trends of cryptocurrencies. This is the nice thing about margin trading. Our stock exchange takes extra commission from us in margin transactions, which is the bad side. If you use 100x leverage in margin trading, you are very likely to lose all your money.