What Is a Debit Card? Analyzing Three Cryptocurrency Trading Methods for Beginners

When entering the world of cryptocurrency, one of the first questions newcomers need to answer is: what is a spot wallet, and how does it differ from other trading methods? The crypto market offers many ways to profit, but without a clear understanding of each type, you can easily fall into unexpected traps. This article will clarify the three most popular trading methods today.

Basic Concept: How Do the Three Cryptocurrency Trading Methods Work?

Before diving into details, understand that a spot wallet is essentially the fundamental unit for storing assets. However, how you use that wallet to trade depends on the type you choose. There are three main methods to grasp:

i) Spot Trading
ii) Margin Spot Trading
iii) Futures Trading

Each method has its own characteristics, risk levels, and is suitable for different trading goals. Let’s explore each to find out which best fits your strategy.

Spot Trading: The Easiest Way to Own Cryptocurrency

Spot trading is the traditional and simplest method of trading cryptocurrencies. Its nature is very similar to buying and selling goods in real life. You have money, you go to an exchange, select the cryptocurrency you want to buy (like Bitcoin or Ethereum), pay immediately with fiat or stablecoin, and receive the asset instantly.

Key features of spot trading:

• Immediate Ownership: After payment, you become the owner of the cryptocurrency. Simple, clear, and safest.
• Full Ownership Rights: The asset is entirely yours, and you can store it in a personal wallet or custody service.
• No Leverage Used: You only use the actual funds in your account to buy. If you have 1000 USDT, you can buy assets worth up to 1000 USDT.
• Lowest Risk: No worries about liquidation or losing borrowed money.

This is an ideal choice for beginners, long-term investors, or those who want to hold cryptocurrencies without dealing with complex risks.

Margin Spot Trading: When You Want to Scale Up

Margin spot trading enhances the spot trading experience by allowing you to borrow money from the exchange. Instead of only using your own funds, you can “borrow” additional funds from the platform to execute larger trades.

How it works:

• Leverage Expansion: With 10x leverage, if you have 10 USDT, you can buy assets worth 100 USDT. Simple steps: your 10 USDT + 90 USDT borrowed from the exchange = 100 USDT buying power.
• Collateral Assets Required: To borrow, you must provide other assets as collateral. This protects the exchange if you cannot repay.
• Liquidation Risk: The downside of leverage. If the market moves against your prediction, the ratio of borrowed funds to asset value can become too high, leading the platform to automatically liquidate your position.
• Interest Rates: Besides trading fees, you pay interest on the borrowed amount, calculated hourly.

This trading type is suitable for experienced traders willing to accept higher risks for higher profits.

Futures Trading: For More Ambitious Traders

Futures trading is a significant step up from the previous two methods. It does not involve buying or selling actual cryptocurrencies but trading contracts based on the underlying asset’s price.

How it works:

• No Actual Asset Ownership: When you buy a futures contract, you do not own Bitcoin or Ethereum directly. Instead, you sign an agreement to buy or sell the asset at a specific price at a future date.
• Profit from Price Differences: Your profit or loss is calculated based on the difference between the entry price and the exit price, not from owning the asset.
• Two Contract Types: Futures contracts have specific expiration dates (ranging from daily to quarterly), while perpetual contracts have no expiration and can be held indefinitely as long as you maintain margin.
• High Leverage: Futures allow leverage from 25x to 125x depending on the trading pair. With 100x leverage, you only need 1 USDT to control a position worth 100 USDT. However, the risk is proportionally high.
• Speculation and Hedging: Some traders use futures to speculate on short-term price movements, while others use it to hedge long-term portfolios.

This method is suitable only for experienced traders with strong risk management skills.

Detailed Comparison of the Three Trading Methods

To help you visualize, here’s a summary of key differences:

How to Choose the Method That Fits You?

After understanding these three methods, you should determine which best suits your situation:

Choose Spot Trading If:

• You are new to cryptocurrency
• You want to hold assets long-term without worrying about liquidation risks
• You prioritize safety over quick profits
• Now that you understand what a spot wallet is and how to use it, just apply it simply

Choose Margin Spot Trading If:

• You have basic trading experience and want to scale up
• You’re willing to accept liquidation risks for higher profits
• You understand collateral management and interest payments

Choose Futures Trading If:

• You are a professional or very experienced trader
• You want to capitalize on short-term price movements in both directions
• You have a clear risk management strategy
• You are prepared to monitor your positions continuously

Conclusion: Start with the Basics

Understanding what a spot wallet is and the three different trading methods is a crucial first step in your crypto journey. Each method has its own advantages but also different risks.

Our recommendation is to start with spot trading to grasp the market mechanics. Once you gain confidence and deeper knowledge, you can move on to margin trading or futures. Remember, caution and risk management are always key to success in cryptocurrency trading.