(1) Explain Spot Trading and Margin Trading
When we start Trading in the cryptocurrency market one of the things we have to decide is what kind of action we are going to take to Trading.
Spot Trading or Margin Trading.
You have to know these two Trading options and make a decision before you start Trading.
To make a decision you must know several things such as what each consists of, their pros and cons.
You can then decide between Spot Trading and Margin Trading.
What is Spot trading?
Single Payment Options Trading (SPOT) trading takes place in a live or immediate transaction.
In this type of negotiation, the buying and selling is done instantly and the participants put their amounts up for sale or purchase.
Basically, a trade is executed at the bid and ask price requested by market participants.
Therefore, the participant's capital must be equal to or greater than the operation to be carried out and must have immediate availability. This allows the transaction to be paid on the settlement date.
Example: if you are buying $100 STEEM with cash, your account must have a balance of $ 100. If this amount is not available, the exchange will not take place.
In spot trading exchange transactions will be carried out according to the order of priority of price and time preference for direct exchange between digital currencies.
What is margin trading?
Margin trading is different from spot trading. In margin trading, you don't need to have the full amount to enter and position yourself in the trade.
You must l have a collateral of assets, which is the margin to operate in the position you are entering.
In this type of operation, the concept of borrowing funds (leverage) from a third party is used to take advantage of their position.
Having this element allows you to trade up to 100 times your capital in crypto instruments.
Example: if you are buying STEEM worth $ 100. If your trading platform provides you with up to 100x leverage (loan) in crypto, you will only need $ 1 in your account to trade $ 100.
In margin trading, real funds are magnified with amplified profits. However, there is also a risk that losses are doubled.
(2) Discuss the advantages and disadvantages of Spot Trading and Margin Trading.
Advantages of Spot Trading
- Since you only use your own investment, the possibility of loss will not exceed your account.
- The transaction is straightforward and requires no intervention by others.
- Because this is a highly competitive business, you can get high profits and the cash price is always good.
Disadvantages of Spot Trading
- This is limited by your account balance.
- Good trading opportunities are wasted.
Advantages of Margin Trading
- Buying on margin allows you to take advantage of your earnings by buying more. In other words, it's more than you get with cash alone.
- Margin trading allows you to seize opportunities. Do not invest or download other resources to raise cash.
- Leveraged margin trading can generate huge profits.
- Even if the price of Bitcoin falls, traders can make money from short positions.
- Because of the leverage of 100 times, there is no need to own a large amount of Bitcoin
Disadvantages or Risks of Margin Trading
- The possibility of losing more than 100% of the investment in commercial margin.
- Interest rates will fluctuate. In this environment, interest rates will rise, increasing the interest burden of investors in margin trading.
- The calculation of loss is the same as that of gain.
In conclusion, which one should I choose?
Everything will depend on your own understanding of the subject.
Ability to tolerate risk.
Knowledge of the investment.
In your lesson 3 How to detect trade? Everything a beginner needs to know ...
Professor @besticofinder explains what a cryptocurrency spot market is and what we must take into account before starting to operate.
In his task 3 he asks us
You need to do your own research and create an article that discusses the following topics,
(1) Explain spot trading and cash trading
margins (2) Discuss the advantages and disadvantages of spot trading and margin trading.
Thank you professor for an excellent conference. This is my homework 3.