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Crypto Spot Trading vs. Futures Trading

Author: nicolas tang

spot trading vs futures trading

Over the years, cryptocurrency derivatives have witnessed a number of developments. Firstly, crypto futures exchanges have had to sweat it out with regulatory authorities. Exchanges have had to defend their derivative products so as to be allowed to launch them for the general public.
In 2019, old cryptocurrency derivatives players set new records in terms of trading volume as new players streamed in with innovative products. For instance, Bakkt and Phemex got into the market and posted significant futures and perpetual contracts trading volumes respectively. Old players like the Chicago Mercantile Exchange (CME) set new trading volumes.
Nonetheless, the Bitcoin spot market is still struggling from the plunge of prices since 2018. 2018 saw Bitcoin drop to almost below $3000 from $20000 in December 2017. This sent shock waves to the majority of Bitcoin spot market traders.
For beginners, understanding the difference between spot trading and futures trading is the first step to becoming a successful trader.

What is Spot Trading in Crypto?

When it comes to cryptocurrencies, spot trading is the most basic type of investment you can make. This essentially entails purchasing crypto such as Bitcoin and holding it until the value increases or using it to buy other altcoins that you believe may rise in value. On Phemex, we accept BTC, ETH, LINK, USDT, and XRP deposits. We also allow users to buy crypto with a credit card directly.

At any point, you can decide to trade (buy/sell) any of these currencies against USDT depending on the trends you see or the strategies that you have. The best benefit of trading cryptocurrencies on Phemex is that as long as you are a Premium member, you will never be charged any trading fees. Phemex is the first major spot exchange to offer this model, as all of our competitors generally charge 0.1% for every trade. Membership prices range from $9.99/month to 69.99/year.

To learn the technology behind spot and futures, head over to our Academy
How to trade crypto?

What is Futures Trading in Crypto?

Trading contracts is a bit different than spot trading as you do not actually need to own the underlying asset. For example, let’s consider our GOLD/USD contract. When trading this product, you are not actually buying or selling gold itself. However, the value of the contract is designed to follow the price of gold. This means that as the value of gold rises or drops, so does the value of the contract. In this way, you are able to benefit from the price movements of gold without actually ever having to buy or sell gold.

Of course, there are many more complexities involved in trading contracts, but the fundamental idea is that you bet on the price of an asset such as gold or Bitcoin either going up or down. Whether you profit or lose will depend on the accuracy of your prediction.

Since the price of cryptocurrency may rise and drop dramatically within a short time, it’s better to pay additional attention to your investment policy.

Phemex provides various tools to facilitate your cryptocurrency trading policy, like take profit, stop loss, and trailing stop. Take advantage of them for your derivatives trading.

Bitcoin Derivatives Popularity

Though Bitcoin derivatives are a new frontier in the financial markets, they have rapidly gained popularity to become one of the most traded products. At the forefront is the Bitcoin futures which have become the most traded cryptocurrency derivative since 2017. The average daily trading volume of Bitcoin futures is about 3,500 contracts with an accumulative value of over $100 billion. Considering that the value of Bitcoin in the spot market has considerably dropped since December 2019, these figures are impressive.
From the statistics, it shows that investors are gaining confidence in derivatives and even opting to trade them instead of trading the spot market. In Bitcoin futures, for example, traders are able to hedge against the volatile market Bitcoin prices.

(Guide on trading bitcoin futures: How to trade Bitcoin futures?)

Difference between Bitcoin spot market and derivatives market

Spot Market

In the Bitcoin spot market, investors own, buy, and sell actual Bitcoin. In simple terms, it is the underlying market where bitcoins are exchanged.

Derivatives Market

On the other hand, in the Bitcoin derivatives market, investors enter into an agreement/contract to buy Bitcoin at a predetermined price and a specified time in the future.
In the Bitcoin derivatives market, investors don’t own actual bitcoins but rather trade on the speculations of the market prices of Bitcoin. Bitcoin contracts which can either be futures, perpetual contracts, swaps, or Options obtain their value from the value of Bitcoin.


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