Hello, everyone. The lectures going on at the Steemit crypto academy has been so great and I was privileged to attend another one by the crypto professor @besticofinder where he taught the process of spot trading and I will be solving the task associated with the lecture. Many thanks to the professor for his time and thanks to the @steemitblog for the avenue.
There are many methods of trading on cryptocurrency exchanges which may be; Spot trading, Margin trading, Fiat and Futures amongst others. In this task, I will covering the meaning of spot and margin trading, and their advantages and disadvantages.
Spot trading is the method of trading that brings buyers and sellers together to a spot in the cryptocurrency market and where transactions takes effect almost instantly. On spot trading, the the buyers place bid order while the sellers place ask order. There is a live price movement of a particular asset of choice which gives the buyers and sellers to place an order at a price they are satisfied with.
The effectiveness of buying and selling takes place when the buy and sell price equals the current price, an order to buy or sell takes immediate effect when the bid or ask price equals the current price. There is a order book on the spot trading that shows a trader the price at which other traders are buying or selling at and this gives a trader more insight of the market and enhance his/her decision on the price to buy on sell.
Chart pattern of an asset
Above is the screenshot of a chart pattern of an asset(PHA/USDT) on the spot trading platform Huobi global exchange.
Order book and Filled
The above screenshots are the ones from the huobi global exchange App where the Order book shows the amount of assets and live prices at which the buyers and sellers are entering the trade and the filled shows the transactions that has successfully taken place on the asset including the amount.
Margin trading unlike the spot trading operates differently to spot trading. Margin trading method is the trading type whereby a trader access funds provided by a third-party for trading. In this case, a trader become borrowers of other funds provided by other people to carry out his/her trades. This method of trading expose traders to high capital they can't really provide on their own thereby increasing their possible profitable outcomes from successful trades. There are interest that are attached to margin trading and this is only agreed on according to the system terms and not based on the fund provider preferences.
Huobi global exchange margin platform
Advantages of Spot Trading
- Spot trading provides transparency. The process of buying and selling are monitored by the system such that at no point can a trader frivolously alter the system but rather input his/her buy or sell price.
- Transactions on spot trading is instant which is not associated with other methods of trading. Spot trading completes a buyer or seller trades immediately his/her buy or sell price equals the current price.
- There is no really capital limitation, traders can enter a trade with whatever capital they have, no matter how small it is.
- Traders can choose to hold on buy and sell order until they are satisfied with the current price before making a decision to buy or sell.
Disadvantages of Spot Trading
- Spot trading lacks planning of taking profits on a future date. It's done on a spot and the trader may need to make decision to buy or sell instantly.
- Due to volatility of the market, a trader can't leave an order on the spot trading in expectant of future profits or else such trader may run at loss.
- Once transactions are concluded on the spot trading platform, a trader can't reverse it if he noticed some irregularities.
- Sometimes there is a risk of buying at a very high price before finding the true or current price which may be lesser than the price you bought at, thereby delaying the process of taking profit from such trade.
Advantages of Margin Trading
- Margin trading gives access to bigger capital for trading. The assets are provided by a third party and a margin trader borrow such assets for trading.
- The interest on borrowed assets on margin trading are relatively low.
- A margin trader can access funds anytime once they have their accounts set up on the margin trading platform.
- Bigger profits are realized through this method such that a trader access a bigger capital he couldn't provide on his own thereby increasing his profits on the trading platform.
Disadvantages of Margin Trading
- There are risks associated with the trading method. Just as bigger profits are possible with this method, a trader tend to run at bigger loss.
- A trader has to repay the borrowed assets if he/she run at loss.
- Interests associated with this method of trading can hinder getting maximum profits from the trading labour undergone.
- Assets of a trader may be forced to sell when such trader can't provide the borrowed asset.
In conclusion, a trader should be able to deduce the trading method that works best for him/her to avoid unnecessary frustration in the crypto trading market. Thanks to the crypto professor @besticofinder for the lecture and I believed I've been able to deal with this to some extent. I look forward to learn more from the Steemit crypto academy.