Crypto Spot Market vs. Futures Market: What’s the Difference?

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Crypto Spot Market vs. Futures Market: What’s the Difference?

Table of Contents

Introduction

Trading is arguably the most recognized offering in the diverse basket of applications that cryptocurrencies present. Like traditional markets, you can have instant access to different crypto assets on Spot Markets or enjoy more complicated trading strategies on Futures Markets.

In this article, we’re going to talk about spot and futures markets, their features, and the risk and rewards associated with each of them.

What is a crypto spot market

Simply put, in a crypto spot market, you can buy or sell cryptocurrencies at the current market price which allows you to have immediate access to your traded assets.

Working with a spot market is quite simple; You can choose to execute your trades on a centralized exchange, like DIFX Exchange, or opt for a decentralized option without any intermediaries (Over-The-Counter (OTC).

For example, let’s consider this simple scenario: you’ve done some analytics and have decided that this is a good time to buy some bitcoin. All you need to do now is head to the DIFX Spot Exchange and:

  • Find the Bitcoin/USDT pair
  • Make sure the “Buy” tab is selected
  • Choose your order type (Limit, Market, Stop-limit)
  • Set the amount and place your order
  • You’ll receive your Bitcoins in your DIFX Wallet once the order has been filled

Hopefully, Bitcoin will appreciate in value and you’ll end up selling your coins with some profits in your pocket. 

Clearly, spot trading is much more complicated than this example. Always remember, when it comes to crypto trading, risk management techniques are essential and quite important.

What is a crypto futures market

With the futures market, you trade a contract in which you’ve agreed upon a predetermined price and date for your trade to take place in the future. In other words, instead of buying or selling the actual crypto asset, you speculate on its future price and can benefit from both market directions.

Before signing the contract, you and the other party have to decide on the price and delivery date for the contract. Futures contracts also allow for leveraging which simply means you can enter a position without paying the full amount.

Futures trading is more complicated than spot trading and the highly volatile nature of the cryptocurrencies makes it even more difficult for experienced traders, let alone beginners.

Spot vs. Futures: What’s the Difference?

Spot and Futures markets have some key differences. Let’s walk through some of the key differences together:

Spot Price vs. Futures Price

As we mentioned before, in a spot market, you can trade at the current market price which is called the “Spot Price”. The spot price is determined by the traders’ buy and sell orders which shows the overall supply and demand within the market.

The “Futures Price”, on the other hand, is an estimation of the value the spot price will take in the future. As a trader, you can analyze the market based on different factors and decide whether the price will increase or decrease in value during a specific period of time.

Leverage

Unlike the spot market, you can open a position in the futures market by just having a portion of the required amount.

Let’s say you want to buy 1 Bitcoin; At the time of buying, BTC is changing hands around $30k: in a spot exchange, you have to pay the whole price of your desired position size while in a futures market, you can pay only a portion of it by leveraging your position and getting the same exposure.

For example, with a 10X leverage, you can increase your initial investment (collateral) power by 10 times. And as always, there’s a catch: the risks will increase proportionately to your leverage size as well.

As a rule of thumb, never investment more funds than you can afford to lose!

Ownership

With the futures market, you don’t need to actually buy and store the underlying asset which can save you a lot of troubles in terms of security and storage management.

Delivery Date

With the spot market, you’ll place an order and receive your crypto assets once the order has been filled. However, in the futures market, your contracts have a predetermined expiration date at which all your positions will be settled.

Spot and futures markets on DIFX

From top cryptocurrencies, like BTC and ETH, to trending DeFi and Metaverse tokens, like SOL and MANA, DIFX Spot Exchange allows you to securely and seamlessly trade a wide variety of crypto assets.

DIFX is also in the midst of planning to release some new upcoming features revolving around futures and insurance trading.