Today, in this article, we will discuss the Difference Between Spot and Futures Market. So keep reading.
Cryptocurrency trading is a financial activity that must be carried out with great caution and analysis because financial markets are risky. In the case of the crypto market; its volatility is a factor that must always be taken care of. Visit: here. The financial operations carried out daily with cryptocurrencies generate returns for many people that allow them to pay their expenses and reinvest in digital assets to continue in a constant and active financial dynamic. When investing in cryptocurrencies, it is necessary to know the concepts and types of markets that offer investors the best benefits and profits.
The spot market is the most used when trading cryptocurrencies since it could be considered the first market of action when entering the world of digital currency investments.
You can buy or sell assets through a regulated exchange through the spot market; which may or may not be decentralized. The difference between these is that the former does not charge commissions and bases its operations on smart contracts; while the latter charges commissions for each transaction made.
There is no leverage in this type of market; you only invest what you own. Spot markets can include cryptocurrencies and traditional financial assets such as stocks and bonds, raw materials, and precious metals, among others, in their product portfolio.
Traders who carry out operations in the spot market can carry out short and long-term operations. They can buy and sell assets whenever they find a favorable price; there must be enough against offers that satisfy the desired spot contract to execute the processes.
The futures market bases its transactions on creating financial contracts whose time and price limits are established in the future. This type of operation can be considered long-term where the asset is not owned until the date arrives, and the terms established by these future contracts will be fulfilled.
Future contracts arise to reduce as much as possible the volatility of the cryptocurrencies that are being negotiated; remember, a digital asset is not acquired or sold; only its future value is negotiated.
Commissions According To The Type Of Market
The commissions generated by the operations carried out through the broker; either in a spot market or a futures market will also depend on the position taken; that is if the investors are market takers or market creators. The commissions generated in a crypto spot market could be located between maximum ranges of 0.2%; it all depends on the volume of operations developed.
The commissions are incurred in a futures market; they imply the expiration date of the contract and what it means to carry out trading operations; in the futures market, investors must be attentive to the moment of closing the operations. If the investors do not close the operations; the automatic closing of the futures contracts will also cause the payment of commissions.
Differences Between Spot And Futures
The financial opportunities offered by both markets are really attractive; it is only necessary for the investor to know the characteristics of both markets and define a strategy that generates the most significant possible advantages. Both markets have very peculiar characteristics in that only the investor is the one who must decide on the one who must have the capital to invest and pay the commissions is the investor himself.
- The prices of both markets: in the case of the Spot market, the prices are at the time of investing, and the profit will be generated when the sale of the digital asset occurs at the final cost of the operation.
The purchase and sale prices are different and the price or value at the time the offer is made will always be taken into account. In the futures market, a price is established with which the parties can feel a benefit; this price is speculative. A series of factors must be considered since the parties’ use will always be sought.
- The closing date of operations: profits in the Spot market are generated immediately, while in the futures market, the gain may not even be granted when the contract is closed.
- Leverage: this characteristic tends to have less impact in the case of the Spot Market since the investor must acquire the currency at the moment, and said borrowed balance generates minimal profits.
Unlike the futures market, the funds available for loans are more outstanding, which allows for greater leverage.
- Investment time: the spot market is carried out intraday, while futures can be carried out with investments over weeks, months, and even years.
The topic of investments in cryptocurrencies and the digital financial market; in general, has a large number of vertices that allow us to have various options when investing. Earnings can be unlimited; you need to have the appropriate knowledge.