What is spot trading in cryptocurrencies
Traders use different ways to make money from tokens and coins. Some buy assets and store them in their wallets, while others enter into futures contracts with the expectation that the price of digital currency will rise or fall.
In addition, exchanges also use other instruments to make profits: options, swaps. But spot trading in cryptocurrencies is a basic form of trading. It is the easiest way to make money on tokens and coins, because the participant of the transaction becomes the full owner of digital assets.
The concept of spot trading in cryptocurrencies
Spot trading in cryptocurrencies is a type of transaction, which results in instant settlement between the parties and the buyer immediately becomes the owner of the digital asset. Usually, the transaction is carried out according to the following algorithm:
- The cryptotrader places an order. It specifies the conditions under which the user is ready to make a deal.
- The order is added to the order book of the crypto exchange. This is a registry in which all offers from clients are entered.
- The second party to the transaction (the counterparty) completes and sends a counter-order. If the terms match the offer available on the market, an exchange takes place between the parties to the transaction.
- Each party immediately receives the required assets to a fiat account or cryptocurrency wallet on the exchange. The order is paid instantly (“on the spot”).
Peculiarities of the spot market for cryptocurrencies
The main difference between this type of transaction and others is the crediting of tokens and coins to the trader’s balance. Spot transactions are similar to settlements at an exchange office or bank branch. If the user bought for dollars or euros, he can deposit them, hide them in a safe deposit box, or give them to another person. The same principle applies to cryptocurrencies. Purchased digital currencies can be withdrawn to a wallet or used for online payments.
Advantages and disadvantages of spot trading in cryptocurrencies
The main advantage of spot transactions is the trader’s complete control over the cryptocurrency. Traders buy real assets, which are immediately credited to an exchange deposit. But spot trading in cryptocurrencies is not without disadvantages. This way of earning is not designed for instant profit. The amount of income of a cryptotrader is limited by the dynamics of the digital currency exchange rate.
|Availability on most crypto platforms.||Profit depends on the magnitude of fluctuations in quotations.|
|Low requirements for the amount of start-up capital.||Crypto traders cannot use leverage – leverage provided by exchanges to buy tokens and coins.|
|The accessibility of the methodology for beginners due to the fact that beginners can easily understand the principles of trading in the spot.||If hackers or fraudsters gain access to an exchange account, they will be able to withdraw assets directly to personal wallets.|
Buying cryptocurrency on the spot market
The process of exchanging assets on immediate delivery terms depends on the type of order chosen. On most cryptocurrency exchanges, these types of orders are available:
- Market. The order is executed instantly at the most favorable rate.
- Limit. A request is entered into the order book and is activated if the price reaches the desired level.
- Stop. Buying the cryptocurrency will occur only after its rate increases by the value set by the trader. Selling the asset is carried out if its price has begun to fall.
- Stop Limit. As soon as the quotation of the crypto-asset has reached the value set by the trader, a limit order is entered into the order book.
Choice of exchange for spot trading
Several factors influence the profitability of speculative operations. One of them is the choice of a cryptocurrency exchange. A good platform must meet the following criteria:
- Low commission rates.
- Security of the account.
- Wide choice of deposit and withdrawal methods.
- High liquidity.
- Availability of bonuses and additional ways to earn money (stacking, lending, crypto loans).
Spot transactions are available on most cryptocurrency exchanges. But, depending on the level of the platform, the list of traded digital currencies may vary. Bitcoin, Ethereum, and other top-rated crypto assets are available on almost all exchanges. The wider the list, the easier it is for a trader to find a currency with a favorable exchange rate.
In addition to real crypto-platforms, there are fraudulent projects on the Internet. Such sites imitate a real exchange, but block the victim after making a deposit. Therefore, when choosing a trading platform, one should evaluate its reputation, avoiding cryptoplatforms with negative customer reviews.
The best spot exchanges
Exchanges are rated according to the following criteria:
- Number of available trading pairs and cryptocurrencies.
- Customer feedback.
- Average daily transaction volume.
- The possibility of depositing fiat.
An international platform founded in 2014 in South Korea. On Bithumb users can make transactions in 296 directions. In addition, clients of the cryptocurrency exchange are available to such services:
- Margin Trading.
- Smart token transactions.
- Steaging (analog of primary placement of coins).
The disadvantages of the crypto-platform include the focus of the company on customers from South Korea. Foreign citizens have problems with creating an account and verification.
A trading platform focused on speculative transactions. Spot trades are available, as well as margin trading. According to the management, the number of active users reached 1.96 million in August 2021. The second advantage of EXMO is its registration in London. The crypto exchange operates in accordance with the British legislation and is supervised by local regulators.
The largest crypto exchange by transaction volume in January 2022. The average daily turnover of the platform reached $20 billion. In addition, Binance offers users different ways to earn tokens and coins. Customers can:
- Carry out transactions of the spot type.
- Trade with leverage.
- Invest digital currency in lending and stacking.
- Make money on futures and options.
A crypto platform launched in 2017. OKEX is under the jurisdiction of Malta. The company offers clients to conduct transactions on the spot. In addition, the list of services includes margin trading and derivatives transactions.
An international trading platform. In 2021, Huobi had offices in 12 countries and more than 1,300 employees.
The developers call their project one of the safest. Up to 98% of customer savings are stored in cold wallets. In addition, the creators take active measures to counter hacker attacks.
Strategies of spot trading
To make a profit, a trader needs to act according to the following algorithm:
- Choose an exchange direction or a specific crypto-asset.
- Conduct a market analysis, determining in which direction quotes are most likely to change.
- Buy a cryptocurrency by filling out an order form.
- Wait for quotes to increase.
- Execute an exchange in the opposite direction, selling an appreciating asset.
The most difficult stage in this list is the market analysis of the cryptocurrency. There is no single method for determining the dynamics of quotes.
Some traders rely on fundamental analysis, others use indicators or set up trading robots. In general, all spot trading strategies can be divided into the following categories.
|Trading by trend||The user determines the dominant mood of other market participants. Trend lines and indicators of thechanalysis are suitable for this purpose. Buying a cryptoasset is carried out at the moment when its rate is steadily growing.|
|Analysis of patterns and shapes on the chart||The trader tries to determine the price dynamics by the quotes history. If characteristic figures are formed on the chart, the analyst can understand whether the trend will continue.|
|Indicator strategies||Most crypto exchanges have tools for technical analysis. Each indicator is based on a mathematical formula. By entering past quotes into it, it is possible to understand how much the current price of an asset differs from the average value.|
Spot cryptocurrency trading is a type of transactions with tokens and coins, in the execution of which there is an immediate delivery of purchased assets.