WHAT IS SPOT TRADING IN CRYPTO?

Spot trading is a type of trading that involves the buying or selling of digital assets for instant delivery on the Spot market. The reason for spot trading is for the buyer to receive digital assets immediately from the seller at an agreed price. The price the buyer or seller decides upon is called the Spot Price.

CHARACTERISTICS OF SPOT TRADING

  • Spot trading has the current price known as the ‘spot price’ at which an asset is bought or sold.
  • It has a list of buy or sell orders known as ‘order book’ which shows the quantities and prices the traders wish to sell or buy the specific asset.
  • As its name implies, spot trading is known for the instant allocation of assets to the buyer. 
  • On spot trading, there is no leverage. This means that a trade takes place without an increase in trade size since there is no borrowed capital.
  • Trade takes place at the current market price.
  • Immediately any trade takes place, the buyers immediately own the assets.

HOW DOES SPOT TRADING WORK?

The following is the step-by-step process of trading on the spot market.

  1. A trader needs to research on which exchange to buy his assets. When the decision has been made, he registers and completes the necessary identity verification like Know Your Customer (KYC).
  1. He deposits fiat currency or cryptocurrency into the exchange and transfers it into the trading option of the exchange and begins trading.
  1. Going through the order book to understand the offers on the buy and sell helps in his trading options.
  1. Select the type of order you wish:

TYPES OF ORDERS IN SPOT TRADING.

  • MARKET ORDER: This is when a trader sets a trade at the current market price after he has necessary the analysis of the market.
  • SPOT-LOSS ORDER: This is when the trader wishes to reduce the level of loss he will accrue, he sets the price that when it falls to a certain level, the trade should execute
  • LIMIT ORDER: This is when a trader wishes to buy or sell an asset at a specified price, he sets it and immediately after the price gets to that point, the market is triggered.
  1. Make sure you monitor and track your orders and portfolio, and when necessary based on the condition of the market, you cancel or adjust them.
  1. You can withdraw your assets to the wallet of your choice for safety reasons.

SPOT TRADING IN CRYPTO: PROS AND CONS

PROSCONS
Spot trading is very simple and straightforward even for a beginner,A trader cannot borrow money to increase his fund therefore you only invest what you can lose.  
Since there is no leverage and you invest when you can in the Spot market, the risk is minimal.Fluctuations in prices result in high volatility which brings about significant loss.
There is an avenue for long-term holding as the buyer directly owns the assets.The returns from spot trading are low when compared to trades that use leverage.

CONCLUSION

Crypto exchanges facilitate spot trading, a strategy in which traders buy or sell the underlying crypto asset at a current market price, and the transaction is instantly settled. Generally, spot trading in crypto refers to purchasing the token at a low price and selling it at a high price.

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