Newcomers often have a question: what is spot and futures trading, what is the difference between them and in what cases one or another trading method is used. The editors of Profinvestment.com propose to consider the features of both options; we will also give examples of cryptocurrency exchanges that support work with spot and futures transactions.
Although spot trading is recommended for novice traders as a simpler and more understandable option, the cryptocurrency derivatives market is also actively developing. In just a few years, it has grown significantly; many spot exchanges have launched a section or even a separate platform with futures. As a result, trading volumes in these areas are increasing at a rapid pace.
Types of markets
In one of the articles I already mentioned that the markets where assets are traded are divided into two categories:
- urgent;
- spot
Let's take a closer look at them.
Urgent
The derivatives market does not mean fast. It is so named from the word “deadline”, and this means that transactions on it are concluded with a deferred deadline. This is convenient when the buyer needs to fix the price and protect himself from its increase, and the seller needs to receive a guarantee for the sale of goods.
However, the futures market is currently speculative because traders have realized that deferred deliveries do not allow them to take assets at all, but open up luxurious opportunities for buying and selling derivative assets called derivatives. Now you don’t even have to have an asset, you just need to make a deposit.
Spot
The spot market is the most real one. Transactions on it are concluded specifically for the purpose of acquiring assets and with short payment terms - from instant transfer of money to two days.
To understand what a spot market is, it's worth starting by looking at the mechanism of a spot transaction.
What is a derivatives market and what is traded on it?
The derivatives market is a segment of the exchange on which contracts with a certain period are concluded. We are talking mainly about futures and options. And to understand the derivatives market, you need to understand what it is.
Futures
In short, a futures is a deferred purchase and sale agreement. The parties enter into a contract under which, within a certain period of time, one of them must purchase a product at a pre-agreed price, and the other must sell it.
If by the set hour the price of a product rises, the buyer will win; if it falls, the seller will win. That is, the benefit of such contracts is tied to the ability to predict how the cost will change, and to a happy coincidence of circumstances.
When it comes to securities, in most cases, after the contract expires, no one sells anything to anyone. The parties fix prices for the goods on the date specified in the contract, and the “loser” pays the “winner”.
Understand the details ⏳
