The eternal debate between so-called "investors" and "traders" - which trading format is more profitable? How to determine which trading format is right for me?
Let's figure it out.
Spot is a traditional asset market where one asset is exchanged for another. There are many trading pairs, but usually only those pairs are traded where there is more liquidity and demand (which is logical). Let's consider the pros and cons of spot in terms of risks and potential profit:
Plus First and foremost - the coins you exchanged belong to you.
Plus Second - the fall in the value of your position can be a maximum of -99.99%
Plus Three - you can average the dollar value of your assets an infinite number of times.
The first minus is that a noticeable profit is only noticeable over time, there is no opportunity to earn daily
The second disadvantage is that different coins are stored in different networks, so you have to worry about storage, wallets, etc.
The third disadvantage is that the market changes quickly and your assets may not bring profit in the long run.
In fact, spot can be called an investment, where you buy assets for your portfolio and hold them for a certain period of time. The profit and risk will depend on the analytical skills of the trader and the investment strategy.
A future is a contract concluded with a futures trading service (for example, an exchange). The contract specifies in advance that the price of one token in a pair (for example, btc/usdt) of trading will rise (long) or fall (short), and also specifies from what values ââthe contract comes into effect.
The contract can use borrowed funds (x leverage), which will be secured by your initially invested funds (margin).
If you have not guessed the price movement on the futures and your margin is not enough to provide leverage, then the contract is forcibly closed (liquidated) and you go to the factory to earn the next 100 USDT.
Let's take a look at how the USDT/LOH perpetual futures works.
Current price LOH = 100 USDT. We buy a futures contract for 100usdt in long (a bet that the price will rise) with leverage x10, i.e. we borrow 900 USDT, accordingly, the margin = 10%.
Let's say the stars aligned, a black cat didn't cross our path, no one spilled salt and we caught the wave, then when the LOH price changes +10% and we close the contract at the LOH price of $110, we will earn 100 USDT to our 100 USDT - the transaction commission (100% = 10% x 10 leverage).
However, given the volatility of the market, and especially many altcoins, we do not recommend using futures as the main way of trading. You will not be able to manage your position using high leverage, which means the chances of saving your deposit in the event of a -30% drawdown on the market (which happens all the time, look at the BTC chart) are close to zero.
You will either get a Stop Loss order if you have placed one, or your position will be liquidated.
Stop loss and Take profit orders are safety orders that you place when opening a futures transaction or after it has been opened.
So here are the pros and cons:
The first advantage is the opportunity to earn several times more than your deposit due to leverage.
The second advantage is the possibility of hedging spot positions.
There is one downside - an inexperienced trader will instantly receive a deposit liquidation or stop order and will go to work at a factory.
In short, if you love futures and casino games so much, then use futures as a hedge against your spot positions using SL orders.
What if!? is one of the most important questions in investing.
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