What is the difference between spot, future, margin and options trading?
Spot trading differs significantly from other forms of trading such as futures trading, margin trading and options trading. With our explanations you can distinguish spot trading from other forms of trading.
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In spot trading, the asset is bought or sold immediately at the current market price and ownership changes directly
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In futures trading, on the other hand, an agreement is made to buy or sell an asset at a later date at a fixed priceÂ
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Margin trading allows traders to trade with borrowed money, which increases leverage but also increases riskÂ
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Options trading gives traders the opportunity, but not the obligation, to buy or sell assets at a certain price within a certain period of time
These different forms of trading offer different strategies and risks, with spot trading being particularly attractive for beginners and new traders due to its simplicity and transparency. Traders can react directly to market developments and remain in possession of cryptocurrencies or other assets in the long term.
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Spot trading in various markets
Spot trading is not only widespread in the cryptocurrency market, but also in other markets such as stocks, foreign exchange and commodities. On the spot market for stocks, for example, investors can buy and sell individual company shares directly at the current stock price. There is also a separate spot market for currencies, the forex market. Currency pairs such as the euro and US dollar or the euro and British pound are traded there in real-time. The forex market is the best known spot market and is used, for example, in every exchange office or when paying with your bank card abroad. In commodities trading, spot trading enables the immediate purchase of commodities such as gold, silver or oil.
In addition to the assets or financial instruments that can be traded, the spot markets also differ in terms of the type of market.
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Spot trading via centralised exchanges: In spot trading via centralised exchanges (CEX) such as Bitpanda, trading takes place via a platform that acts as an intermediary between buyers and sellers and often offers high liquidity and a user-friendly interface
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Over the counter trading (OTC): Over the counter trading (OTC) is direct trading between two parties without a central exchange in between, which is particularly suitable for large transactions in order not to influence the market price too much
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Spot trading via decentralised exchanges (DEX): In spot trading via decentralised exchanges (DEX) trading is carried out directly via smart contracts without a central authority, which means that investors retain full control over assetsÂ
As these markets are all based on the principle of instant settlement, spot trading in any asset class offers a transparent and direct way to buy and trade assets at the current price.
Various trading strategies for spot trading
Various trading strategies can be used in spot trading, depending on your objectives and risk profile.Â
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A popular strategy is Buy and Hold, where you buy assets and hold them for the long term in order to benefit from increases in value
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Day trading is suitable for traders who want to execute several transactions within a day and profit from short-term price fluctuations
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Swing trading is aimed at medium-term movements in which traders hold positions for several days or weeks
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Position trading, on the other hand, refers to holding assets for longer periods of time in order to make larger profits when the market price moves significantly
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Another popular strategy in spot trading is Dollar Cost Averaging, in which a fixed amount is regularly invested in an asset, regardless of the current market price, in order to profit from the average price in the long term and minimise the risk of market fluctuations
Each of these strategies can be applied flexibly in spot trading, depending on your trading strategy, experience and market analyses.
Advantages and disadvantages of spot trading
Spot trading offers several advantages that make it attractive to many investors. A major advantage is its simplicity and real-time execution: You trade directly at the current market price without considering complex mechanisms such as leverage or margin. Spot trading also offers high liquidity, as transactions are executed immediately and you take direct possession of your assets. Full ownership of the purchased assets can also be seen as an advantage, as you can manage them freely after the purchase. Furthermore, trading is always flexible with spot trading, which means you can decide when to buy and sell.
On the other hand, there are also disadvantages. Spot trading is subject to the risks of price fluctuations as markets can be volatile, especially in the cryptocurrency market. In addition, spot trading lacks the leverage effect that enables potentially higher profits with other forms of trading, but also increases the risk. Also, you must pay the total amount of the capital you wish to invest at the time of the trade. In order to be able to react to the market, it is important to always be up to date and follow market developments.
