Today I will tell you about spot trading and contract trading in the cryptocurrency world.
Spot trading is like buying something in the market. For example, there is a coin, and the current market price is 1 yuan each. You spend 10 yuan to buy 10. Later, the price of this coin rises to 2 yuan. If you sell all 10, you can get 20 yuan, minus the principal of 10 yuan, and make a net profit of 10 yuan. But if this coin falls to 0.5 yuan, you can only get 5 yuan if you sell it again, which means you lose 5 yuan. Spot trading is similar to the stock market, that is, buying at a low price and selling when the price rises, and you cannot short sell. Simple, right?
Contract trading is a bit complicated. It is a kind of financial derivative trading. It is not a real commodity transaction, but an agreement between you and the platform, which is considered an option. For example, there is a coin that is 1 yuan now, and you think it will definitely rise to 2 yuan in the future, but you don’t have much money on hand, and the full position is only 1,000 yuan. At this time, you can borrow a loan through the platform, and use 1,000 yuan of margin plus 100 times leverage (the platform will lend you 100,000 yuan) to do contract trading. When you open a position, the coin price is 1 yuan, then the value of your position becomes 100,000 yuan. If the coin price really rises to 2 yuan, your position will be worth 200,000 yuan. After you close the position and return the 100,000 yuan borrowed from the platform, you can earn 100,000 yuan. But oh, the risk is also great! If the coin price only drops by 1% to 0.99 yuan, then you will be liquidated and lose all your money. This is the "power" of leverage. The same is true for short selling.
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