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The main idea of spot trading is to buy cheap and sell expensive on the financial market as often as possible in order to maximize the trader’s trading income.

To illustrate how this works better, consider the following examples using Bitcoin (BTC) and the popular Tether (USDT) stablecoin backed by the dollar.

The purchase of cryptocurrencies takes place on the exchange and for this trader Bob places a purchase order to receive the equivalent amount of BTC in the amount of $ 1,000 at a price of $ 48,000 per BTC. Bob is matched with trader Alice to make a deal, which offers to sell him BTC for USDT at the above transaction price.

Immediately after traders Bob and Alice come to an agreement on the deal, the contract will be filled out and executed.Trader Bob will receive 0.0208 BTC, and trader Alice will receive 1000 USDT.

Case 1

If after some time the price of BTC on the market rises to $49,500 per BTC and Bob decides to sell his coins, they will cost about $ 1,029, that is, Bob will make a profit of $29.

Case 2

If after a while the price of BTC drops to $46,500 per BTC and Bob decides to sell his coins, they will cost approximately $967. Bob lost 33 USDT.

What is the spot market?

The spot market is a public market where cryptocurrencies are traded for immediate settlement.

What is spot trading?

Spot trading is a continuous process of buying and selling tokens and coins at a spot price for immediate settlement. The trader intends to profit from the market fluctuations of the cryptocurrency by trading his tokens on the spot market. Cryptocurrency trading – in this process, lower time frames are used and more profits are made for several small transactions in the market that are made in low time intervals.

As a spot trader of the market, you do not need to hold coins for too long, as this seems to be a profitable tactic that allows you to make several small profits in a short time. In addition, you can use the paper trading option available on several exchanges to get an idea of the market.

There are a number of examples of spot trading on both traditional and cryptocurrency markets. For example, you buy gold at the spot price in the hope that it will rise in the coming months. Now, if the price of gold in the market rises over the next few months, you will make a huge profit; if it decreases in the market, you will suffer losses. Similarly, in the crypto market, if you buy a coin right now at the spot price of the market and hold it for the next few months, you will either make a huge profit or incur losses in the market.

Limit orders (sale)

Follow the same procedures as for the purchase order, but instead of the “Buy” button, click the “Sell” button and a window will appear to confirm the operation. Next, select the “Confirm” button.

You can sell Bitcoin as quickly and easily as you bought it. Note. To continue selling, you can enter the amount you want to receive in USDT or the amount you want to spend in a symbol/coin.

Advantages of Centralized Exchanges (CEX):

One of the key defining features of centralized exchanges is that they are custodial. What does it mean? This means that when you want to trade on CEX, you keep your funds in a wallet linked to the exchange itself, and not in your own wallet. Trading takes place on a cryptoplatform and it is important that this exchange stores the private keys to the wallet, and not you — instead, you receive data to log in to the platform.

On a superficial level, this has some advantages, especially for new users who are just beginning to understand the complexities of cryptography: The secure management of your private keys is one of the most serious challenges for crypto holders, so using an exchange that handles this burden by allowing you to focus on trading may seem quite attractive.

Centralized exchanges are characterized by high liquidity. They facilitate transactions by centrally matching “buy” and “sell” orders from users, also known as the “order book” system. This means that liquidity is a function of the number of buy and sell orders on the books, and since most people’s first steps in cryptocurrency take place on a centralized exchange, their order volumes are necessarily higher than those of their decentralized counterparts. This system is further supported by the fact that centralized exchanges can offer incentives to large traders who provide liquidity in their order books.

Disadvantages of CEX

A centralized exchange requires that you store your funds in your own exchange wallet, the keys of which are managed by the platform. Allowing the exchange to manage your wallet key means that any assets you keep in the wallet are not really yours. You have planned to purchase cryptocurrency on the stock exchange and it is worth assessing the degree of security. By leaving your funds in an infrastructure other than your own wallet, you are relying on the security standards of another organization. If the exchange is hacked or subjected to phishing, or even fails, your coins will also be lost.

One of the main disadvantages of CEX is the entry barriers set by the exchange itself. This can take several forms: you can search for a certain coin for exchange, but you cannot find it because the exchange (for its own reasons) decided not to integrate this coin; or maybe you live in a country where certain exchange services are prohibited. In any case, the fact is that with centralized decision-making on the exchange, users are limited by the access provided by the platform.

Advantages of Decentralized Exchanges (DEX)

Since DEX does not interact with fiat money, they do not have to meet KYC requirements — this means that you will not need to enter an identity card to start using them. It is possible to sell Ether without entering special data. The good side of this is that your privacy is respected, and your data is not left on the digital network so that someone can listen to it or hack it.