Spot or Margin Trading?
This type of trading occurs in the spot market at the current price. When you are engaged in spot trading, you make a deal at an affordable bid and ask price, which is requested by other market participants. To complete a trade, you need to have available assets to pay for the trade by the settlement date. For example, if you are going to make a purchase of BTC in the amount of $1,500, then you must make a deposit by the date of settlement of at least the specified amount. Usually the date is calculated according to the T + 2 trading day scheme. Otherwise, the exchange will refuse to enter the Bitcoin position. Image for post
With margin trading, you borrow funds from a third party to increase your position. Margin and spot trading are different. With margin trading, you do not need the full amount of the transaction to open a position, you just need to have assets that will be on the margin of the position you are going to open. For example, you are going to buy BTC for $1000. Some platforms are ready to provide you with up to 100x leverage. That is, you only need $10 on your account to trade Bitcoin for $1,000 BTC. To keep a position open, you only need to hold 1% (with 100x leverage) of the contract amount. Depending on the course of the trade, you can open even more positions or withdraw profits.
What to choose?
Spot Trading: benefits Management of risks: trading occurs only with your own balance, which you actually own, that is, the impossibility of going into a negative. Guarantee: spot trading takes place only on own assets. In this way, the exchange ensures that you avoid over-leveraging.
Spot Trading: limitations Missed trading opportunities: even with confidence in the deal, you will not be able to earn 100% or more, you will only be able to earn the amount that your capital allows.
Margin Trading: benefits Possibility of increasing profits: the presence of leverage allows you to increase your trade up to 100 times in comparison with your capital. Low-frequency trading: an increased likelihood of trades identified in this type of trading.
Margin Trading: limitations Risks: Opportunity to lose more money than the initial investment. Liquidation: complete liquidation of a position with insufficient funds to cover losses.
What strategy should you follow?
It all depends on your usual trading style and your character: are you tolerant of risks, what knowledge about investing you have. Choose the strategies that are right for you.