At Gate, you can choose from various trading methods, including spot trading, margin trading, and perpetual futures trading. Understanding the differences between these trading methods can help you choose the most suitable trading strategy.
Spot Trading
Spot trading refers to the transaction of buying one cryptocurrency with another as the quote currency. Traders pay the full price and receive cryptocurrency immediately.
Characteristics of Spot Trading
Instant Settlement: Assets are delivered immediately after the transaction is filled.
No Leverage: Traders can only use the funds available in their accounts.
Long-Only Trading: Profits can only be made by buying low and selling high.
Perpetual Futures Trading
Perpetual futures is a derivative used to invest in cryptocurrency assets, similar to traditional futures but without an expiration date. Users only need to focus on price fluctuations, which is more convenient.
Characteristics of Perpetual Futures Trading
No Expiration Date: Users can hold contracts indefinitely.
High Leverage: Offers 1-100 times leverage, enhancing capital efficiency.
Long and Short Trading: Profits can be made by predicting both price increases and decreases.
Differences Between Spot Trading and Perpetual Futures Trading
In terms of the trading side, spot trading can only go long, i.e., profit by buying low and selling high; while perpetual futures trading can profit not only by buying low and selling high, but also by selling high and buying low, which are suitable for both bull and bear markets.
In terms of leverage and capital efficiency, spot trading has no leverage, leading to low capital efficiency. Perpetual futures can set leverage up to 100 times, achieving high capital efficiency but also amplifying trading risks.
Example:
Investor A and B each invest $100,000 in BTC_USDT trading on January 1, 2022. The BTC price at that time was $47,732, and by September 22, 2022, the BTC price was $19,202.
Investor A: Uses spot trading and incurs a loss of $59,771.
Investor B: Uses 10x leverage to short BTC, earning $597,712.
Margin Trading
Margin trading involves using your cryptocurrency assets as collateral to borrow multiple times the assets from the platform for trading, which must be repaid within a specified period.
Characteristics of Margin Trading
Leverage: Amplifies the trading scale and potential returns, but also increases risks.
Long and Short Trading: Profits can be made by buying low and selling high or by selling high and buying low.
Differences Between Perpetual Futures Trading and Margin Trading
Both can use leverage to enhance capital efficiency and can go long or short, suitable for both bull and bear markets. The main differences are:
- Higher Leverage in Perpetual Futures: Provides up to 100 times leverage, leading to higher capital efficiency.
- Simpler Process for Perpetual Futures: No need for complicated borrowing and repaying processes or paying interest on borrowed funds, making trading smoother and more straightforward, and more user-friendly for investors.
Summary
Each trading method has its advantages and disadvantages. Traders should choose the appropriate trading method based on market conditions and their risk preferences.
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