What is Spot Trading?
Curious about cryptocurrency, but really have no idea where to start?
Spot trading is an excellent place to start, but a host of available options and strategies may overwhelm you. In this article, some of the most basic aspects of spot trading will be discussed, a step-by-step guide on how one can get started will be given out, and valuable insight will also be shared concerning the best strategy and practices that shall bring in success.
Spot trading means buying or selling a cryptocurrency at the prevailing current market price and intending to take immediate delivery of the asset. This is opposed to either futures or options trading, whereby you would deal in a contract that will eventually give one the right to buy or sell an asset at a certain price some point in time.
Many traders love to spot trade since the market provides ample opportunities to make quick money by speculating on its ups and downs. It does, however, have its risks and challenges, too, which will be discussed later in this article.
How to Get Started with Spot Trading
Getting started with spot trading is relatively easy but does take some basic knowledge and preparation. Here are the steps to follow:
First, choose a reputable exchange that enjoys good credibility. Select any exchange that lists your cryptocurrency pair for a spot trade. Create an account on that exchange and get it verified. Afterwards, you may deposit the funds with which you wish to trade into your account. Get familiar with the platform of the exchange and its features, including charts and order books.
Start trading: Make your first trade and begin growing your portfolio.
Strategy of Spot Trading
There are numerous spot trading strategies that you can avail depending on your goals and risk tolerance. Let’s discuss a few widely used one’s below:
- Technical Analysis: You can make use of charts along with technical indicators to identify trends and patterns taking place within the market.
- Fundamental analysis: The trader needs to research the underlying fundamentals of a digital currency, its use case, team, and market demand.
- Scalping: Earn money by buying and selling a cryptocurrency in as little time as possible.
- Swing trading: Simply hold onto the cryptocurrency for an extended period of time, while it waits for a huge movement in the market.
Spot Trading vs Other Types of Trading
A little further down the line, spot trading is just one type of trading, and it does have its advantages and disadvantages versus other kinds of trading. A few of the main differences existing are:
- Futures trading: Futures trading involves buying and selling a contract that leads to the entitlement of purchasing or selling at a particular price in times to come. This involves more intricacies and hence requires deeper market understanding.
- Option trading is generally defined as a trade of contracts wherein one receives the right to sell or buy any specific form of an asset in the future at a pre-identified price. Options trading is also a more complex form of trade and entails much more comprehensive understanding of the market.
- Day trading: As the name would suggest, trading involves the buying and selling of a cryptocurrency in one single trading day. This kind of trading is faster and requires better knowledge of the market.
Common Mistakes to Avoid in Spot Trading
Spot trading offers lucrative opportunities but carries inherent risks. While emotions can derail trading decisions, disciplined risk management through stop-loss orders is crucial. Success requires careful market analysis and a deep understanding of traded cryptocurrencies.
