Trading in spot markets is one of the most common ways for people to trade, especially beginners. Let’s run through the advantages, disadvantages, and potential strategies for spot trading.
Spot trading involves directly purchasing or selling financial instruments and assets such as cryptocurrencies, forex, stocks, or bonds. Delivery of the asset is often immediate. Spot trading occurs in spot markets, which are either exchange-based or over-the-counter . When trading on spot markets, you can only use assets you own - there is no leverage or margin.
Centralized exchanges for spot trading manage regulatory compliance, security, custody, and other factors to make trading easier. In return, exchanges take transaction fees. Decentralized exchanges provide a similar service but through blockchain smart contracts.Spot trading offers a simple way to invest and trade.
Spot markets are also known as cash markets because traders make payments upfront. Spot markets come in different forms, and third parties, known as exchanges, typically facilitate trading. You can also trade directly with others in over-the-counter trades. We'll dive into these later.Spot traders try to make profits in the market by purchasing assets and hoping they’ll rise in value. They can sell their assets later on the spot market for a profit when the price increases.
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