What is Spot Trading

Spot trading, simply put, refers to buying and selling financial assets or instruments directly. 

Just imagine if you were to buy Bitcoin or Ethereum directly through an exchange. This is what you call a Spot trade. 

Spot trading can either be done directly on the exchange, in that they are exchange-based, or through various OTC channels, and the transfer of assets is often immediate. 

Your first crypto transaction is often done in the spot market. Think of purchasing the SNAP token and HODLing directly through SnapEx. 

Like a lot of these financial terms, you’re more familiar with them than you think you just don’t know it. 

Think about, for example, when you hear about FTSE in the UK, HKEX in Hong Kong, NASDAQ in New York, or the NYSE, these different exchanges are actually spot markets. 

Different financial instruments are often traded in these markets, including forex, stocks, shares, commodities and, most importantly, cryptocurrencies. 

We’ll now take a deeper dive into what Spot Trading is.

Now tell me, what’s a spot market?

A spot market is a market in which an asset is purchased openly and available to the public. More often than not, the transfer of ownership of the good, as well as its delivery, is immediate. 

Spot markets are also regularly referred to as cash markets because the payments, more often than not, are made directly.

Ok, so how do people make money through spot trading? 

Remember the Bitcoin rush in early 2021 where BTC hit an all-time high? 

The people who bought BTC when the price was low and watched the value increase were the ones that made the greatest profit. 

In other words, they achieved the result they sought to achieve, which can also be referred to as ‘alpha’ 

What about those that bought when it was at a high of $60,000 but then saw the price go down? 

Well, those were the ones that lost out. 

That is the result you do not want to achieve.

A person within the spot market aims to buy the good for as low a price as possible and aims to sell at as high a price as possible. 

In other words, it’s the age-old mantra of ‘Buy Low, Sell High’ 

We will now explore the different types of trading platforms that are out there and identify the ways in which SnapEx is different.

OTC versus Exchanges: What are the Key Differences? 

While a lot of Spot trading is done on exchanges, it is not just limited to NASDAQ. 

You can also do it with a third party through OTC or peer-to-peer rails. 

In other words, Spot Trading is much simpler than you think, but it can often be highly speculative, which can make derivatives the safer bet.

Exchanges

Think of an exchange as a simple marketplace. 

You hold an item, and in that marketplace, you can buy or sell, depending on what the price of the item is on that day.

Of course, as you get deeper into it, you find more complexities, but that is by and large what it is. 

Provided the buyer has enough cash and the seller has the assets, the transfer of goods can take place. 

There are two types of exchanges in which this can be done, centralized and decentralized exchanges, which we will go into more detail on in a future article.

OTC Channels

OTC, put simply, refers to Over the Counter, and simply just refers to the transfer of an asset between two people. 

Let’s give an example:

You have made a profit on your digital asset and you want to sell it to convert it to fiat currency (for example, Euro, Dollar). For this to take place successfully, you need to find a buyer, which is normally available in the P2P, otherwise known as peer-to-peer section of an exchange. 

A buyer can choose how much he wants to buy it for. If a seller accepts the buyer’s price, then the transaction can take place. The seller transfers the BTC (or SNAP) to the buyer’s wallet and the buyer transfers the fiat currency to the seller’s bank account. 

Likewise, a seller can list a digital asset he wants to sell. If the buyer thinks the price is reasonable, he will purchase it using fiat currency and the seller will transfer the digital asset to the buyer. 

This can take place and be organized through text messages and don’t necessarily need to go through an exchange (though it is recommended since the exchange gets all parties to do enhanced KYC before P2P can take place, making it as safe as possible).

What are the drawbacks of spot trading and what does SnapEx do to fix this?

There are a couple of drawbacks to spot trading, most notably in terms of the prices and ‘banking’ on them to move in one direction – up. 

That’s where SnapEx makes all the difference — For Real! 

Within every trade, you have an ‘opening’ trade and a ‘closing’ trade – This is why they are very popular with traders who want to be able to benefit from their positions. If the price increases or decreases, they stand to gain if they get the position right by going ‘long’ or going ‘short’.

The thing about spot trading is you often have a high barrier to entry, but with CFD trading, that problem doesn’t exist.

Likewise, if the value of the asset is going down, you can profit. Just imagine if the price of Bitcoin was going to lose 90% of its value overnight (we don’t think that’s going to happen, but hypothetically speaking!), you could stand to gain, because you profit from the difference in prices, not from the appreciation in value of the asset that you hold, as is the case with spot trading.

That is the key advantage with CFD trading which is offered by SnapEx. When the markets are down, the derivatives and CFD markets are the ones that are left standing.

If you want to learn more about how to execute CFD trades, click here (hyperlink to a separate article on how to execute CFD trades on SnapEx)

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