Trading operations are considered one of the most important investment tools in the financial markets, and are basically divided into two main types: Spot Trading and Futures Trading. These two types differ in terms of mechanism, risks, and investment objectives. Below we will review the difference between them in detail.
First: Spot Trading##
1. Definition:
Spot trading means buying and selling assets such as cryptocurrencies, stocks, or commodities and having them delivered directly or “instantly” at the same time or within a short period (usually 1-2 business days).
2. Mechanism of action:
The asset is purchased at the current market price and the full amount is paid.
Delivery is made immediately or within a short period after the transaction is executed.
The investor can actually own the asset after purchase.
3. Investment objectives:
Profit by selling the asset after the price has risen.
Long term or short term investment.
4. Risks:
The risks are relatively limited because the investor does not use leverage.
The investor loses only the capital used to purchase the asset.
5. Example:
If you buy 1 Bitcoin at $40,000 on the spot market, you own 1 Bitcoin directly, and if the price rises to $50,000, you can sell it for a profit of $10,000.
Second: # Futures Trading #
1. Definition:
A futures contract is an agreement between two parties to buy or sell a specific asset at a specified price on a specific future date, without having to actually own the asset.
2. Mechanism of action:
Leverage is used which enables the trader to control a large volume of contracts with a small amount.
The underlying asset is not actually delivered, but rather the difference between the contract price when it is opened and its price when it is closed is settled.
Futures contracts can be long (buy) or short (sell) based on the trader's expectations of the price.
3. Investment objectives:
Hedging against price fluctuations.
Speculating on prices to make quick profits.
4. Risks:
Using leverage increases the risk; the loss can exceed the deposited capital.
Requires careful management of funds and open positions.
5. Example:
If you expect the price of Bitcoin to drop from $40,000 to $35,000, you can open a short position. If the price drops to $35,000, you make a profit equal to the difference between the two prices.
The most important differences between spot trading and futures contracts
Which is better?
The choice between spot and futures trading depends on the trader's goals and level of experience:
Spot Trading: Suitable for beginners and investors who want to own assets and avoid high risks.
Futures: Suitable for professional traders who are looking for opportunities to make quick profits and are good at managing risks.
Conclusion
Spot and futures trading are different instruments but offer great opportunities in the financial markets. Spot trading is less risky and more straightforward, while futures offer the potential to multiply profits using
For leverage but with greater risk. The choice between them depends on your goals and risk tolerance.
In my opinion, spot trading is better, and do not forget that Islamic law
Betting, speculation and leverage are forbidden, which is why futures contracts are forbidden according to Islamic law. Don't forget to support us so we can continue.