E&S Special Edition: Spot, Futures, Derivatives. Where should I start?

E&S Special Edition: Spot, Futures, Derivatives. Where should I start?


Hi Publish0x community and welcome back in my Sunday article dedicated to the Easy and Short. Cryptocurriencies made accessible section.

Today we are in the last article of a special month of this section dedicated to Binance!

Have you missed last article? Don’t worry you can recover it here.

Today we are going to see the different main characteristics of various types of market, like SPOT Market, FUTURES and DERIVATIVES.

When it comes to cryptocurrency, spot trading is the most basic type of investment you can make. Essentially, this requires buying a cryptocurrency such as Bitcoin and holding it until its value increases or using it to buy other altcoins that you think may appreciate.

In the Bitcoin spot market, investors own, buy, and sell actual Bitcoin. In simple terms, it is the underlying market where bitcoins are exchanged.

Another notable feature of cryptocurrency exchanges is that they operate 24/7. The cryptocurrency market is not interrupted. Transactions can be executed 24 hours a day, 365 days a year, 7 days a week. Not only can you trade, but funds can also be deposited or withdrawn from your exchange account at any time. Interestingly, most cryptocurrency traders still execute transactions directly on the exchange. This means that traders will deposit funds in exchange accounts, manually place orders to buy and sell assets, and maintain trading strategies without the need for automated software.

I really like spot trading on Binance because of its high liquidity in a very large number of pairs.

binance

What is crypto futures trading?

Trading Futures contracts are somewhat different from spot trading because you don’t actually need to own the underlying assets. For example, let us consider the BTC/USDT contract. When trading this product, you are not actually buying or selling BTC itself. However, the price of the contract is designed to follow the price of BTC. This means that as the value of BTC rises or falls, the value of the contract also rises or falls. In this way, you can benefit from changes in the price of BTC without actually buying or selling BTC

To open a new transaction on the futures exchange, the collateral will be checked for margin.

There are two types of margin:

  • Initial margin: In order to open a new position, your collateral needs to be greater than the initial margin.
  • Maintenance margin: If your collateral + unrealized gains and losses are lower than the maintenance margin, you will be automatically liquidated. This will result in fines and additional costs. You can liquidate yourself before eventually stopping out the position, to avoid being automatically liquidated.

Due to leverage, relatively small capital expenditures can be used to hedge spot or holding risks in the futures market.

binance

Then we can find two different kind of contract. The first one is the Perpetual Contract and the second one is a Traditional Futures Contract.

The Perpetual Contract is similar to the Traditional Futures Contract, but the main difference is that the perpetual contract does not expire or settle.

Perpetual contracts are an attempt to use futures contracts (especially undelivered actual commodities) while imitating the behavior of the spot market to narrow the price gap between the futures price and the marked price. Compared with traditional futures contracts, this is a significant improvement. There may be long-term or even permanent differences between traditional futures contracts and spot prices.

Very often there is confusion and people don’t know all the pros and cons of these different types of markets. Precisely for this reason I decided to make a video where I explain the main differences between these markets and what the advantages and disadvantages of each type can be. That’s the link to my YouTube video:

Inside the video you will find an innovative comparison between Spot Markets, Futures Markets and CFD. Orange is the way 😉
Plus in the video, I dedicated some time to get deeper into the Leveraged Tokens, a complete innovation of the Cryptocurrency market! You must give a look!

Let me know what you think of these different types of markets and you personally which one do you prefer and use?

Don’t forget to follow me on Publish0x for next articles and subscribe to my YouTube channel to stay update with next videos. I’ll soon publish new interesting contents!


MikeZillo
MikeZillo

Daily Trader, Mining Farm Project Manager, Blockchain consultant, Cryptocurrency evangelist. You can find more videos here https://www.youtube.com/channel/UCvyXx6I1C__zmLAYUXNZwQQ?


Easy&Short. Cryptocurrencies made accessible
Easy&Short. Cryptocurrencies made accessible

In this section, we are going to create two article per each cryptocurrency/token. The first one will be technical, with a simplification of the Whitepaper and the second one will be about particulars of the coin. For example staking yields, particular functions and so on! I am sure you will like this very much!

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