DIFFERENCE BETWEEN SPOT TRADING AND LEVERAGE TRADING.
Spot trading and leverage trading on Binance serve different purposes and involve varying levels of risk and reward. Here's a comparison:
**Spot Trading**
Definition: Spot trading involves buying and selling cryptocurrencies at the current market price. You own the asset outright after purchasing.
Ownership: You take direct ownership of the cryptocurrency.
Risk: Lower compared to leverage trading because you can only lose the amount you invest.
Reward: Potential profit is limited to the price increase of the asset you own.
Capital: Requires the full amount to purchase the desired quantity of cryptocurrency.
**Example**: If you have $1,000, you can buy $1,000 worth of Bitcoin directly.
**Leverage Trading (Margin/Futures)**
Definition: Leverage trading involves borrowing funds to increase your position size. It allows you to trade with more capital than you have.
Ownership: You don't own the cryptocurrency directly; you're trading based on price movement.
Risk: Higher because losses can exceed your initial capital if not managed properly.
Reward: Higher potential profit due to the amplified exposure, but losses are also magnified.
Capital: Requires less initial capital since you are using borrowed funds or leverage.
**Example**: With $1,000 and 10x leverage, you can trade as if you had $10,000. A 10% price increase would give you a $1,000 profit, but a 10% price drop could wipe out your initial capital.