The cryptocurrency market offers a variety of ways to trade assets, and as a beginner, it's essential to understand the basics of three (3) common methods: 

 

i) Spot Trading 

ii) Spot Margin Trading

iii) Futures Trading 

 

In this article, we'll break down these three (3) approaches in a beginner-friendly way, helping you grasp the key differences and guiding you to determine which method might be the most suitable for you.

What are Spot, Spot Margin, and Futures Trading?

Spot Trading

Spot trading is similar to buying and selling in the real world. When you engage in Spot trading, you're directly buying or selling the actual asset, like Bitcoin or Ethereum, at its current market price. This involves a direct exchange of two (2) assets between buyer and seller, granting you immediate ownership of the assets. Here's what you need to know:

• Immediate Exchange: You get the actual assets right away.
• Ownership: You possess the asset, and it can be stored in your wallet.
• No Leverage: You utilize your own assets to trade without employing leverage.

Spot Margin Trading

Spot Margin trading adds a variation to Spot trading by allowing you to borrow funds from the platform to make bigger trades.  Here's how it differs:

• Leverage: You can buy or sell more assets by borrowing funds from the platform. 
• Collateral: You will need to have other margin assets as collateral to secure your borrowing.
• Ownership: While you retain ownership of the asset, there's a liquidation risk if things take a downturn, such as when your loan-to-value ratio becomes too high.

Futures Trading

Futures are contracts that derive their value from an underlying asset. When you buy or sell a Futures contract, you do not own the underlying crypto assets. Instead, you are entering into agreements to buy or sell assets at a predetermined price on a specific future date.

 

In the cryptocurrency Futures market, you don’t necessarily need to buy or sell the underlying assets upon the delivery date. Instead, your profit or loss is based on the difference between the value of the assets when you entered the market and its value on the delivery date or the day you sell the contract.

 

Bybit offers various Futures contracts, including Inverse and USDC Futures contracts with expiration dates ranging from daily to quarterly. Additionally, Perpetual contracts such as Inverse, USDT, and USDC Perpetual contracts have no expiration date.

• Leverage: You can hold a larger position size with a smaller margin required. However, be cautious, as using lower margins to maintain your position increases the risk of liquidation.
• Expiration Date: For a Futures contract, there is an expiration date and you must settle it by closing the position when the contract expires.  In contrast, Perpetual contracts have no expiration date and can be held indefinitely, as long as you meet the margin requirements. It's important to note that there is still a potential for liquidation if margin requirements are not maintained.
• Speculation and Hedging: Used for both speculation (profit-seeking) and hedging (risk mitigation) purposes.

Comparison Between Spot, Spot Margin, and Futures Trading