What Is Spot?

Spot refers to a contract or transaction buying or selling a cryptocurrency for immediate settlement, or payment and delivery of the cryptocurrency on the market. It is most commonly used in the context of trading. 

Spot trading is the easiest way to invest in cryptocurrencies since it simply refers to buying the actual cryptocurrency and obtaining possession of it. 

What Is Spot Trading In Crypto?

Spot trading is the exchange of one currency, fiat or crypto, for another. That means spot traders buy digital assets and obtain possession of it. Spot traders are limited by their bankroll and cannot invest more than the money they have. The opposite of spot trading is margin trading, where traders buy a digital asset with borrowed funds and can trade a bigger size than the initial investment. In contrast to margin traders, spot traders can never be forced to sell since their maximum downside is the cryptocurrency going to zero. 

How Does Spot Trading in Crypto Work?

Spot traders rely on rising prices to make profitable investments. That is why they prefer to follow a simple trading strategy and buy crypto assets at prices they perceive as low to sell them later at a premium. Therefore, they like to employ a dollar-cost-average strategy to take profits. 

Spot Trading vs Futures Trading

Spot trading refers to buying crypto assets with other assets. A spot trader cannot buy more than the bankroll they allocate for investing. Futures trading refers to buying the right to purchase crypto assets at a future date. With perpetual futures, this right is extended indefinitely, making futures trading effectively a speculation on the direction of the price without delivery of the underlying crypto asset. Futures traders can trade with leverage and move bigger trade sizes than their initial investment. However, they are also at risk of being liquidated.