What is the difference between spot and futures?
Spot Trading
Suppose you decide to invest in Bitcoin (BTC) and think that its price will rise. So you buy 1 Bitcoin on a digital currency exchange for $30,000. After a while, the price of Bitcoin does rise, rising to $70,000. You decide to sell at this time, so you make a profit of $410,000. This is a simple example of spot trading, where you actually own and hold Bitcoin and make profits through the rise and fall of the price.
Futures Trading
Unlike spot trading, futures trading allows you to make profits by predicting price movements without actually holding digital currencies. Suppose you still think that the price of Bitcoin will rise, but this time you choose to trade futures. You buy a Bitcoin futures contract, agreeing to buy Bitcoin at a certain price (such as $35,000) at a certain point in the future (such as one month later).
Before the contract expires, if the market price of Bitcoin rises to $70,000, and the contract you hold allows you to buy it at $40,000, then you can sell it on the market at $70,000 and make a profit on the difference. You don't actually hold Bitcoin, but you can still make a profit by predicting price movements and taking advantage of the contract's provisions.
In addition, contract trading often involves the use of leverage. Assuming you use 10x leverage for contract trading, you only need to invest 1/10 of the contract value to trade. This means that your profit or loss will be magnified 10 times. If the price of Bitcoin does rise as you expect, your profit will be much greater than if you didn't use leverage. However, if the price of Bitcoin falls, your losses will also be magnified rapidly, and may even exceed your initial investment.
Spot trading focuses on the rise and fall of the price of the actual digital currency you hold, while contract trading allows you to make a profit by predicting price movements and taking advantage of the contract's provisions, while also using leverage to magnify your profits (or losses).
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