April 23, 2024
Cryptocurrency

What Is Spot Trading and How Do You Profit?

Spot trading Crypto

Defining Spot Market 

The spot market comprises buyers and sellers that are willing to buy the asset at prevailing market prices. Hence, in traditional finance as well as the crypto world, spot markets serve the same purpose. Crypto spot market prices are settled on ‘spot’ as both buyer and seller decide to get into the agreement. A spot market usually consists of buyers, sellers, and an order book.  

An order book beholds the orders placed by buyers and sellers. As a trader, you can decide to deal in different cryptocurrency pairs of your own choice. The crypto market is subject to gradual fluctuations and that is why it is highly volatile. This volatility is subject to market mood and sentiment. Traders usually take the help of market fundamental analysis and technical analysis to look into the dynamics of trading and when to come into the market.  

What is Spot Trading in Crypto and How Does It Work? 

Spot trading is most popular among the trading community as this seems to be easier to understand and get into trading. Many beginners also grasp spot trading easily as this encumbers buying into the present value of digital currencies and being their rightful owners. When one gets into crypto trading, they buy their desired currency at a spot price and can later sell them at a higher price.  

Spot trading is a way to make profits for people and businesses to buy and sell digital assets. Unlike futures that take into account the future settlement date and sometimes in the case of perpetual the contract keeps going forward unless not terminated or stopped. Spot market solely profits the present-day investors and helps them make healthy profits simply holding them in custody.  

Examples of Spot Trading 

The central idea behind making spot trading works in our favor is to buy low and sell high. This helps to generate trading revenues. To illustrate this strategy consider that you bought Bitcoin BTC from Tether USDT. A trader named Alex places an order of $700 USDT for$22000 a worth of BTC. Jim another trader decides to sell him another BTC for $700 at the aforementioned price Alex. As they both reach an agreement. the order is filled and executed. Alex will receive a fraction of the BTC he ordered and Jim will receive the price for selling his BTCs. While Alex receives 0.3181 BTC for 1000 USDT. 

Scenario 1 

After buying BTC at 1000 USDT, if BTC rises in price to $22,500/BTC and Alex decides to sell his BTC it would be worth 1030 USDT now. Alex successfully made a profit of 30 USDT. 

Scenario 2 

If after some time, the price of BTC drops and reaches $20,000/BTC and Alex thinks to sell his coin, it would be worth 900 USDT. Alex made a loss of 100 USDT.  

Places to Trade for Crypto Spot Market 

The crypto spot market is available in the following formats and places. As a trader, you can get it over the counter, peer-to-peer, centralized exchange, and decentralized exchanges.  

The Counter Trading (OTC Market) 

OTC spot trading happens between two parties. These parties operate outside of crypto exchanges. The dealers and the brokers involved in OTC are market makers they quote different prices for buying and selling cryptocurrencies.

OTC trades are private in nature and operate in an unregulated environment. OTC markets usually have large amounts of crypto without making many changes in the market price.

OTC is therefore the primary mode of selling or buying cryptocurrencies, serving as the easiest spot trading platform for many traders.  

Peer-to-Peer (P2P) 

Peer-to-peer helps traders to trade digital assets with each other. Just like OTC, P2P can be taken care of without the inclusion of third parties and intermediaries. P2P gives more clarity and control over the trading activity between the parties. P2P offers benefits such as a trading environment without risky third parties and escrows do come in to facilitate traders holding funds for them. However, at many points, P2P traders suffer from low liquidity issues and slow settlement time.  

Centralized Exchanges (CEX’s)  

Just like traditional marketplaces, many traders now deal in centralized exchanges dealing in cryptocurrencies. These exchanges serve as brokers and provide custody of assets to both sellers and buyers. CEXs now offer transactions using order books and models to facilitate orders.  

CEXs are famous for allowing services such as depositing and storing crypto assets on platforms. Through centralized exchanges, one can enjoy higher liquidity, quick order execution time, safety, security, and higher customer protection. For providing all such services, CEX offers transaction costs and fees. At present, CEXs are most commonly used by traders to get into the spot markets for digital currencies.  

How to Make Profit in Spot Market? 

The easiest approach to make a profit in the spot market is by buying low and selling high as the asset price increase. One thing to note is one cannot make a profit unless they not sell assets. This comes with the realization of assets at the time of selling.  

Advantages of Dealing in Spot Markets 

Spot trading is less risky as compared to perpetual future and perpetual swaps. One can purchase assets without the fear of them being liquidated as in the case of perpetual futures and swaps.  

It is simple to navigate and measurable as well. One can easily measure their risk-to-reward ratios using the crypto assets in the hold and present in custody. More importantly, many traders use their assets at stake and earn returns on them. Instead of holding them, making sure they are investable and providing returns on different time frames.  

Deal in Spot Market with Bitflex 

You can buy and trade in different currency pairs from the range of pairs available in the spot market on Bitflex. With the help of safe and secure means to safeguard your crypto trading and investing journey, we make sure your returns are safe just like your funds. You can make as many trades as you want with the help of the right strategy. Our up-to-the-mark and enhanced features will help you foresee what stands best for you and your trading journey.  

About Bitflex  

Bitflex is a cryptocurrency exchange platform that offers traders a secure, easy-to-use, and convenient way to buy, sell, and trade cryptocurrencies. Our platform has been designed with investors of all levels in mind, whether they are just starting out or experienced traders. We offer various features and tools to help users make the best trading decisions possible, including advanced charting and analytics, real-time market data, and various customizable trading interfaces. At Bitflex, we are dedicated to empowering our users and helping them reach their financial goals.   

Stay in the loop about our launches, trading pair announcements, contests, and more by following us on Discord, Telegram, and Twitter.  

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