What Is Spot in Cryptocurrency?

A spot transaction is when you buy or sell a cryptocurrency for instant settlement on the market.

Get to Know with Spot

Spot refers to a contract or transaction for buying or selling a cryptocurrency for immediate settlement on the market. It's a straightforward way of trading cryptocurrencies.

Spot trading is the simplest form of cryptocurrency investment because it involves buying the actual cryptocurrency and taking possession of it.

What Is Spot Trading in Crypto?

Spot trading involves exchanging one currency, whether fiat or crypto, for another. Spot traders purchase digital assets and take ownership of them. They can only invest up to the amount of money they have, unlike margin trading, where traders use borrowed funds to invest in larger amounts. 

Unlike margin traders, spot traders can't be forced to sell because their maximum risk is the cryptocurrency becoming worthless.

How Does Spot Trading in Crypto Work?

Spot traders aim to profit from rising cryptocurrency prices. They typically follow a simple trading strategy of buying crypto assets when prices are low and selling them later at a higher price. Many spot traders use a dollar-cost averaging strategy to manage their investments.

Spot Trading vs. Futures Trading

Spot Trading

Spot trading involves buying crypto assets outright. Spot traders are limited by the amount of money they have for investing. Futures trading, on the other hand, involves purchasing the right to buy crypto assets at a future date. 

Futures trading

With perpetual futures, this right extends indefinitely, allowing traders to speculate on price movements without actually owning the underlying crypto asset. Futures traders can use leverage to trade larger positions than their initial investment, but they also face the risk of being liquidated.

Also Read

What is a Soft Fork (Blockchain)?

What is Byzantium Fork?

What Is Smart Contract?

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.