Spot Trading and Margin Trading are two of the most popular types of asset trading in the markets. Both terms are derived from traditional stock markets, where they represent the two most common forms of trading. In this article, you’ll learn all about crypto spot trading and crypto margin trading along with the differences between these two.
Spot trading is the simplest type of crypto trading. Just like spot trading in stocks, this one involves directly purchasing and selling cryptocurrencies such as Bitcoin and ETH from the market. This is called spot trading because all trades take place on the spot based on the availability of buyers or sellers.
When spot trading cryptocurrencies, buyers and sellers are matched based on their bid-offer prices and trades execute when a match is found.
The difference between crypto spot trading and stock trading is that crypto exchanges operate 24x7, allowing people to trade cryptocurrencies at any time of the day from anywhere in the world. Moreover, it is easy to buy crypto for everyone, even with fiat currencies and credit cards.
Crypto margin trading involves borrowing funds from the trading platform or broker against your crypto holdings to place leveraged (borrowed) bets. Funds can be used to make long or short positions and high-value trades, which were not possible before due to the lack of funds. While this boosts your chances of profit, it also exposes you to more risks and potential losses. Plus you have to pay interest on borrowed funds irrespective of whether you lose or win.
To start margin trading, you must have funds (holdings) to put up as collateral.
Nomoex is a fast-growing crypto asset trading platform that offers spot trading, margin trading, copy trading, AI trading and other advanced crypto trading features to boost investors’ profits and accessibility. This next-gen crypto investment ecosystem provides tools and services customized to meet the needs of different types of investors, from beginners to proficient traders.
Now that you know the basics of spot trading and margin trading, let’s talk about the difference between these two popular crypto trading methods.
1. Spot trading is simpler than margin trading
Spot trading is very straightforward and the simplest form of trading. The trades are simple and direct between buyers and sellers. All trades are on the spot. Margin trading, on the other hand, involves trading on borrowed funds. It may require additional features in your trading account and expert knowledge of how margin trading works.
2. Spot trading involves less risk
Spot trading is the basic form of trading and involves general risks associated with crypto trading. However, when you trade crypto on borrowed funds in margin trading, your risks are also elevated.
3. Potential profits in spot trading are less than margin trading
The statement ‘low risk low return’ applies here. Since spot trading is simple and involves limited risks, the profitability is also usually lower than margin trading, which offers higher returns for higher risks.
4. Margin trading can be highly rewarding
By providing users with access to higher funds and bigger trades, margin trading also boosts their potential profits at the risk of higher losses. Spot trading, on the other hand, offers relatively lower rewards at low risks.
5. Traders in margin trading have to pay interest on borrowed funds
One downside of margin trading is that traders are required to pay interest on their borrowed funds, irrespective of whether or not they make profits.
Almost 90% of all investors and crypto traders are engaged in spot trading, which is simple and bears low risk. However, if you’re looking for more rewards and can handle more risks, margin trading is a good way to achieve higher profits.
If you’re new to crypto trading, you should maybe start with spot trading, and once you get a hang of it, you can switch to more riskier and rewarding margin trading. Make sure to find and choose a reliable and reputable crypto trading platform.
