Introduction to Spot Trading
- Must-Read for Beginners
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Spot trade refers to the direct purchase and sale of financial instruments and assets such as stocks and bonds. In the world of digital assets, spot trading specifically involves buying and selling cryptocurrencies at their current market prices (also known as spot prices) for immediate delivery.
Unlike futures trading, spot trading requires traders to own certain assets before placing buy or sell orders. The concept applies to all tradable goods. When you buy something in everyday life, you are engaging in a form of spot trading. Spot trading emphasizes the payment of goods on delivery, and the end of a trading relationship upon the delivery of goods and payment. Its purpose is to allow both parties to acquire or transfer ownership of the goods in a relatively short time.
For example, you are a buyer offering $10,000 to buy 1 BTC. If a seller is willing to take your offer at this price, the trade will be executed immediately. The system will transfer $10,000 from your account to pay the seller, and transfer 1 BTC from the seller's account to your account.
From the above explanation, we can easily see how the two parties involved in spot trading can only trade with the current assets on hand. Thus, leverage and margin do not apply to spot trading.
One feature of spot trading is that investors are trading physical assets rather than futures contracts. The other feature is investors have ownership of the digital assets. These two features give traders a greater sense of security and make the investment process easier.
Spot trading is highly flexible, as there are no restrictions on trading hours, locations, or counterparties. Trades are settled immediately upon payment, making the process quick and efficient. Investors can choose to hold assets for the long term or take advantage of short-term price fluctuations, buying and selling at any time. Online trading platforms further enhance accessibility, allowing investors to execute trades with ease.
