Spot trading Summarized
If you have bought an asset in exchange for another on an exchange/market either the stock market, the forex market, or the crypto market, then you have traded Spot.
Spot trading is a trade that takes place in the market at a current spot price where users set a price which in turn affects the price of the assets as well as serves as a counter for trading immediately. Spot trading is used to executing trade after the bidding price of a particular market price an individual is asking for. One must have available assets ready to perform your transaction by the date of settlement.
Margin Trading Summarized
The concept of borrowing funds from a third party to perform your transaction is called margin trading. Transactions can be performed on margin trading without having the entire amount ready, but you must possess an asset that will serve as collateral for the margin you are trying to bargain for. With Margin trading, Leverage (borrowed funds) allows traders to amplify their trading funds while holding on to their capital (margin).
Differences between spot trading and margin trading
Advantages of Spot trading
- Spot trading serves as risk manager because you can only trade with our available balance.
- Losing more than what you have in your account won’t happen
- Over leveraging are been avoided and it makes sure trading are been done based on owned assets now.
Disadvantages of spot trading
- Good trading opportunities are not fully guaranteed because trading can’t exceed more than what you have in your account.
- Even though there is a good trading conviction, money that can be made is just as the exact capital that you own and you can still lose funds trying to swing trade.
Advantages of margin trading
Margin trading gives room for a trader to multiply your profits since it amplifies the user's fund used to trade.
- It gives the trader opportunity to trade 100% of your capital trading on cryptocurrency. Margin trading gives you a lot of returns trading at the right moment.
- Margin trading has a huge advantage for you depending on your trading style. This gives more chance for traders to get more than their normal trading gain because they are allowed to trade 100% of their capital.
Disadvantages of margin trading
- Traders have a high probability of losing as much capital as they traded just as they can make as much profit as their capital.
- Trading up to 100% in margin trading makes it possible for traders to lose more than the initial investment. This is not like spot trading where you only lose your available capital.
- If there aren’t enough margins to support the loss of time liquidation may actually occur when using margin trade.
Comparing Spot and Margin TradingSpot trading deals mainly with only buying and selling of currency whereby one currency needs to be spent before getting back another. Trading with spot trading is secure and affordable. It gives access to trading with only available margin in your wallet.
Margin trading works mainly by borrowing units or money to improve and increase one's profit. Trading in margin involves 100% of your available units or coin and this helps to get more profits other than spot trading.