Spot Trading
Spot trading refers to the transaction of buying one cryptocurrency using another as the pricing unit. Traders pay the full price and receive cryptocurrency immediately.
Characteristics of Spot Trading
Instant Settlement: Assets are delivered immediately upon trade completion.
No Leverage: Traders can only utilize funds available in their account balance.
Long Trades: Profits are generated by buying at lower prices and selling at higher prices.
Perpetual Contract Trading
Perpetual contracts are derivatives used for cryptocurrency investments, similar to traditional futures contracts but without an expiration date. Users only need to focus on price movements, making trading more convenient.
Characteristics of Perpetual Contract Trading
No Expiration Date: Contracts can be held indefinitely.
High Leverage: Offers leverage from 1x to 100x, enabling greater capital efficiency.
Long and Short Positions: Profits can be earned by speculating on both rising and falling prices.
Differences Between Spot Trading and Perpetual Contracts
Trading Direction:
Spot trading only allows long positions, meaning profits are made by buying low and selling high.
Perpetual contracts allow both long and short positions, meaning profits can be made by buying low and selling high or by selling high and buying low, making them suitable for both bull and bear markets.
Leverage and Capital Efficiency:
Spot trading has no leverage, resulting in lower capital efficiency.
Perpetual contracts offer leverage up to 100x, enabling higher capital utilization but also increasing trading risks.
Example: Investor A and Investor B both invested 100,000 USDT in BTC/USDT trading on January 1, 2022. At that time, BTC was priced at 47,732 USDT, and by September 22, 2022, the price dropped to 19,202 USDT.
Investor A used spot trading and lost 59,771 USDT.
Investor B used 10x leverage to short BTC and made a profit of 597,712 USDT.