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Spot trading is one of the most basic ways to trade or invest in crypto. Many crypto traders first begin their crypto journey by interacting with the spot market before moving into more complex trading instruments such as futures trading and margin trading.
What Is Spot Trading?
Spot trading in cryptocurrencies is the buying and selling of a digital asset or crypto in a base market through a crypto exchange for immediate delivery. By using spot trading, you can buy or sell a digital asset quickly at the current market rate. The base market, where crypto assets are instantaneously exchanged and settled, is known as a spot market.
In spot trading, you buy the asset with your own money. This means you can only buy as much as you can afford, and nothing more. For this reason, it is considered relatively safer than other trading markets because you can only lose the money you already have in the worst-case scenario.
Other trading methods, such as margin trading can cost you even more as you are taking more risks by using leverage. However, in the spot market, even when you invest in a token that becomes worthless, you will never be forced to sell at any point when you have that asset.
How to Spot Trade on a Crypto Platform?
Not many people know that in the early days of cryptocurrencies, early adopters acquired coins through mining or by swapping them in online forums. This proved to be complicated and a lot of hassle for newcomers who are not crypto natives and are still new to the industry.
Eventually, in the mid-2010s, the early cryptocurrency exchanges came around to solve this issue. Crypto exchanges are businesses that store crypto assets and match you with other buyers and sellers, making it possible to trade crypto much like you would trade stocks in a brokerage account.
Spot trading on a crypto exchange platform is relatively straightforward. First, you’ll need to register an account with a crypto exchange and deposit some fiat currency, like the US dollar inside to be able to purchase crypto on that platform.
There are thousands of crypto exchanges in the world to choose from today. In some crypto exchanges, you will not be able to purchase crypto directly with fiat and you will need to first acquire some stablecoin.
The primary use for a stablecoin is facilitating trades on crypto exchanges. Instead of buying let’s say Bitcoin directly with fiat currency, traders often exchange fiat currency for a stablecoin such as USDT or USDC — and then execute a trade with the stablecoin for another cryptocurrency.
In this way, stablecoins are sort of like poker chips for crypto exchanges.
Once you have converted your fiat into crypto you can access the platform’s spot trading page and choose the crypto you’d like to trade. Once you have chosen your crypto, you’ll need to choose whether you want to buy or sell. You can then place your trade order, specifying the price and the total amount of the asset you wish to trade.
When the order is accepted, it will be processed, and the trade will be completed.
Spot Trading vs. Margin Trading
Where spot traders buy assets with their capital, margin traders borrow capital to purchase stocks or crypto. While this allows them to buy assets in larger quantities, it also forces them to meet margin requirements to avoid a margin call.
Because the costs of a margin loan can pile up, margin traders often trade in a shorter time frame than spot traders. This type of trading is also considered riskier because a losing margin trade can cost you more than your initial investment.
Spot trading vs. Futures trading
As mentioned, spot trades are conducted instantly for immediate delivery. However, contracts on the futures market are paid for later when a buyer and seller agree to exchange a specified quantity of items for that price.
The buyer and seller often reach a financial settlement rather than hand over the asset after the contract expires on the settlement date.
Spot Trading Tips for Beginners
Cryptocurrency spot trading can be a lucrative adventure, but it can also be quite risky. For traders new to the world of cryptocurrency, it is important to understand the basics before getting started.
Here are some strategies for successful crypto spot trading, whether you’re a newbie or an experienced trader:
- Develop a Solid Trading Plan: Before embarking on a trading journey, it is important to have a solid trading plan. Make sure to define your goals and determine the amount of capital you are willing to invest. Also, research the different types of markets and decide which ones you want to focus on.
- Understand Market Trends: It is important to stay up to date on the latest trends in the crypto market and to understand the different trading strategies. Try to keep an eye on the news, follow the developments in the market, and pay attention to the price movements.
- Diversify Your Portfolio: Diversifying your portfolio can help minimize the risk associated with crypto spot trading. Try to spread out your investments into different types of cryptocurrencies and different types of trades.
- Limit Your Risk: Risk management is essential when trading cryptocurrencies. Make sure to set a stop-loss limit and never risk more than you can afford to lose. Also, try to use leverage and limit orders to minimize potential losses.
How to Trade Spot on the Bitflex Website
Go to www.bitflex.com and log in to your Bitflex account. Click on the Spot Button in the header to navigate to the Spot Trading Page.
If you are trading on Bitflex for the first time, you will need to deposit funds into your account. Please follow this guide to learn how to deposit funds to your Bitflex account.
After you have transferred funds to your spot wallet, you can buy your desired trading pair. Navigate to the “Trading Pair” section and choose the pair you want to buy or sell.
For more extensive information, please refer to the guide here.
Conclusion
Cryptocurrency spot trading has become increasingly popular in recent years due to its ability to generate significant returns in a relatively short period of time. In addition to that, cryptocurrencies are starting to become mainstream worldwide, and this attracts a lot of new crypto traders into the market.
If you’re new to crypto spot trading, it’s important to remember to trade safely. Only use reputable crypto exchanges and make sure to check the market rates before placing any trades.
If you’ve enjoyed reading this article, do check out our trading platform and sign up with Bitflex today to stand an opportunity to win amazing prizes in our ongoing and upcoming campaigns!
About Bitflex
Bitflex is a cryptocurrency exchange platform that offers traders a secure, easy-to-use, and convenient way to buy, sell and trade cryptocurrencies. Our platform has been designed with investors of all levels in mind, whether they are just starting out or experienced traders. We offer various features and tools to help users make the best trading decisions possible, including advanced charting and analytics, real-time market data, and various customisable trading interfaces. At Bitflex, we are dedicated to empowering our users and helping them reach their financial goals.
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