Spot trading is one of the easiest ways to foray into crypto trading zones. If you are a new trader in the crypto scene, it is advised to embark on your trading journey with crypto spot trade. Spot trading has always been a popular trading strategy in the traditional mainstream trading market given its breezy simple trading process. And much to the convenience of crypto traders, the new-age crypto trading market too has made way for crypto spot trade.
One of the major benefits of crypto spot trade is that it allows you to start trading with a low entry point. As a result it makes it more convenient for beginners who initially want to test the water with minimal investment. But, there are many other advantages of crypto spot trade. We will discuss all these in detail later – first, let’s have a look at the basics of spot trading in the crypto market. Read more about Multibank.io.
Crypto spot trade- overview
The keyword is “spot” here.
In crypto spot trade, the process of trading happens right on-the-spot. The seller and buyer conducts spot trading based on the live current price of crypto assets. The payment, too, is made upfront. Apart from the seller and buyer, a crypto spot trade market also features order books.
You can conduct crypto spot trade with a pair of different types of crypto assets- say one bluechip coin like Ethereum, and one stablecoin like Tether. Some crypto exchanges can also offer crypto-fiat pairing for crypto spot trade.
Most of the crypto spot traders prefer to sign up for day trading. In day trading, you try to make profit based on little price fluctuations that happen in one trading day. The range of profit would be smaller in comparison to HODLing though- however, if you can carry multiple trading within one day, you will have a sizable volume of accumulated profit. Scalping would be an effective trading strategy here if you want to make multiple profits with the crypto you bought with crypto spot trade. In scalping, traders carry trades after every few seconds or minutes to gather up a bundle of small profits.
On the other hand, some crypto spot traders prefer to go for HODLing as well. In case you are an amateur to the crypto scene, HODL means buying crypto and holding it for a lengthy period for larger returns.
Where to carry crypto spot trade?
There are three places where you can crypto spot trade of which the most popular one is crypto exchange. The other two are OTC trading platform and P2P trading platform.
Crypto trading exchanges
You can carry crypto spot trade from either a centralized exchange or a decentralized exchange. Here is a brief on both –
Centralized exchange
Centralized exchanges operate under one single authority. These platforms also serve as custodian of user funds.
Pros:
- Heavily regulated
- High processing speed
- High liquidity
- KYC verification to keep imposters at bay
Cons:
- High fees
- Easy target for hackers
Decentralized exchange
Decentralized exchanges are developed on a decentralized framework and the platform is not controlled by one single authority. DEXs execute trades through smart contracts-based AMM. Also, unlike their centralized counterparts, DEXs do not control the funds of the users. Put simply, if you conduct crypto spot trade with a DEX, you will have complete control over your funds.
Pros:
- Nearly impossible to hack
- Lower fees
- Relaxed trading environment
- More freedom for traders
Cons:
- Slow processing speed
- High congestion
- Low liquidity
OTC trading platforms
The next option for crypto spot trade is OTC crypto trading platform.
One of the best aspects of conducting your crypto spot trade at an OTC platform is lower fees. OTC platforms usually follow lesser regulation protocols in comparison to crypto spot trade exchanges.
While DEXs use AMM tools to conduct the trade, in an OTC platform, it’s the broker or dealer who doubles up as market maker. Some traders prefer the OTC platforms because these portals allow them to execute crypto spot trade yet without causing heavy price fluctuation in the market.
P2P trading platforms
P2P platforms are sometimes mentioned in the same panel as DEXs but these are not identical twins. Yes, both the platforms allow crypto spot trade over a decentralized network but there is not much similarity after that. In a DEX, crypto trades are carried anonymously where buyer and seller do not get to know each other. But in a P2P platform, crypto spot trade is conducted in direct communication between the two parties.
One of the best aspects of executing crypto spot trade with P2P trading platforms is that these portals offer greater range of flexibility to traders, in comparison to other trading platforms. If you trade on a P2P portal, you will have the liberty to select your preferred buyer/seller, payment method, pricing, as well as mode of payment.
However, it also should be noted here that P2P platforms are rife with scammers and hence riskier than other trading platforms. But, some advanced P2P platforms have integrated smart contracts recently that allow automatic processing of payment, thereby reducing fraudulent activities by a great extent.
Major benefits of crypto spot trade
We will wind up the article with a brief on the advantages of signing up for crypto spot trade.
One of the best advantages of crypto spot trading is that the process allows open negotiation between the two parties involved in the trade. Both the seller and buyer can come to a balanced and fair settlement through easy negotiation. The route to negotiation is usually higher in P2P platforms as here you can communicate directly with the seller/buyer.
The other advantage, as had been mentioned initially, is low entry point. Also, the whole process is always transparent as the payment happens upfront. In fact, this is a key point where spot trading scores over forward trading. In forward trading, the payment is made at a future date and there have been multiple cases where the buyer fled away without paying the seller.
Besides, as crypto spot trading focuses on the present price of the market, the process saves the trader from sudden future price fluctuations.
