But what is spot trading, and why is Crypto spot trading such a common thing compared to other methods of trading?

An Intro to Spot Trading in Crypto

Spot trading is all about buying and selling assets directly. Transactions are based on assets that you actually own - there is no such thing as credit or IOUs - and the assets are exchanged almost instantly. In a nutshell, this is the absolute base form of crypto trading as a whole.

Crypto spot trading mostly happens in spot markets, which can either be public exchanges or agreements between both parties in private. Spot trading through official spot market sites is often safer, but any option can work as long as both spot trading partners are trustworthy.

If you are just starting out with trading crypto, then you should expect spot trading to be your starting point. A new crypto trader can easily learn how to spot trading works within a matter of days, giving them an easy way to buy and sell on a crypto market.

Is Spot Trading the Default?

Spot trading is often seen as the most basic form of trading for a reason. It is simple, quick, direct, and does not usually involve any over-complicated gimmicks that would make it hard to tell what is going on. This makes it the best place to get started with crypto trading, especially as a brand-new crypto owner with no trading experience.

Remember that trading is a very complex thing, even if you follow the simplest trading methods. There will be times when a platform offers a feature that you do not understand or short language is used that you have not gotten used to yet. The best way to learn spot trading is to try doing a couple yourself or watching others handle their own spot trading first.

What is Spot Trading?

While the basics of spot trading might be obvious after the first couple of trades, it is important to know how it impacts both the buyer and the seller as a trading strategy and method.

Spot trading is all about value. Spot traders will trade crypto on a regular basis - they buy crypto assets, leave them to see if the value increases, and then sell them again for a profit. This is the heart of spot trading and the main purpose of trading in this manner.

Why Use Crypto Spot Trading?

Spot trading is simple, effective, and focused primarily around turning a profit. This means that it is one of the most direct ways to trade crypto at any kind of trading volume since the spot trades are all going to focus on the overall sale prices and price fluctuations.

The point of spot trading is to sell cryptocurrency at a higher value than the last traded price to turn a trading profit. A successful spot trade would be one where you bought some crypto for one spot price and then re-sold it for higher than the initial investment spot price, earning you a profit that you can use for another spot trade.

The crypto spot market is vast and varied, covering a lot of different cryptocurrency options. Trading at spot markets does not just have to involve one currency, and many people end up trading multiple to ensure that they are always turning a profit with at least one.

How to Spot Trade

Spot trading is not hard, but new spot traders can often struggle to figure out how the process should ideally work. It can take a few trades to get used to how the crypto spot market works and even more to figure out the finer details of spot trading properly.

The more you know about spot trading crypto assets, the easier it is to make sure that all transactions occur smoothly. The last thing you want is to run into issues with your trading options when you are in the middle of a spot trade that is worth a lot of money, so it is a good idea to learn as much as you can before committing to any large trades.

Choosing a Platform

There are two core kinds of spot markets: exchanges and over-the-counter trading. Both are useful for different reasons, but choosing the right option can make a big difference in how a spot trade goes. Exchanges like coinpass are a great option, especially for new traders.

Whatever you are looking for, keep in mind that there is not a perfect platform to suit all trading needs. Many people stick with one platform, but others eventually branch out to pursue different market options or just to diversify how they trade their crypto. If you are new to spot trades, do not over-complicate things by overextending too quickly.

Centralized Exchange

A centralized exchange is an intermediary between the trading of digital assets and also provides extra protection and levels of security to keep your assets safe. These are often the first place that new traders will begin their trading journey since they can trade digital financial assets safely and quickly.

Good centralized exchanges can provide a lot of useful benefits and features, ranging from increased customer protection to a real-time feed of the market price of different types. As a centralized exchange platform, they are part of a larger company and are a very reliable way to trade large amounts of digital assets all at once.

Of course, every exchange is different, so one may offer features that another does not. Because of this, choosing the right exchange is very important. The way that you approach trading will depend on which exchange you use, especially for new spot traders that need to learn through hands-on trading experience.

Unfortunately, these centralized exchange platforms are also more vulnerable to hacking and cybersecurity risks than some other options. They also tend to charge service fees for all spot trading actions and are controlled by a single entity that can make changes to the platform at will.

Decentralized Exchange

Decentralized exchanges are an alternative kind of exchange that runs through blockchain technology, keeping them fully decentralized and out of the hands of a single company or party. This makes them a lot safer in terms of cybersecurity threats, but they also come with quirks that make some spot trading newbies less inclined to use them.

These systems are built to remain private and anonymous, allowing for easy trading between users without putting their data at risk. While these are not ideal for larger market and limit orders, since the platforms do not allow for much liquidity, they also avoid the need to transfer anything to a third party.

These platforms are usually fully decentralized, giving them both the benefits and weaknesses of a decentralized trading tool. You are not stuck listening to a single entity that has authority over the whole platform, but major features like fiat currency trades and scam protection are not always going to be available.

Using these decentralized exchanges is always an option, but it will not be ideal for every spot trading newcomer. A lot of these platforms are geared toward experienced traders with a lot of developed crypt asset trading strategies or people who buy and sell assets as their professional source of income.

Over-the-Counter Trading

Over-the-counter trades, or off-exchange trading, is trading without using an exchange at all. These are generally direct trades from one party to another and can be done for numerous reasons depending on what you are trading.

Individual people will usually use over-the-counter trades for direct trading with one another, while companies regularly turn to OTC trading in crypto if they want to avoid causing a slippage through large trades. The OTC market can work well for almost any spot transaction, but only if handled correctly.

The main issue with OTC trading is you need to know the person or company on the other side. You do not have an exchange platform that will let you post a vague sell order: if you can't find somebody with a trading pair that is willing to trade with you, then you do not have anybody to trade with.

Over-the-counter crypt asset trading is useful, but it is best used only when you absolutely need to rely on it. Many new traders would prefer to stick to a serious centralized exchange instead since they provide more features and tools to help each trade go smoothly.

Spot Trading vs Margin Trading

Margin trading is another trading option that you will find on most spot market platforms, but it is a distinctly different trading method that relies on third parties to handle correctly.

Margin trading is all about borrowing money from a third party to buy and trade more assets than you could originally afford, allowing you to build a stronger crypto asset foothold on your chosen platform. This amplifies both your earnings and your losses, making it a higher-stakes method of crypto asset trading.

Neither option is better than the other - the only thing you need to worry about is the risk. Margin trading on a spot market might allow you to get more of an asset or place a higher buy or sell order, but regular spot trading can result in lower losses if you accidentally make a mistake.

Spot Trading vs Derivatives Trading

The crypto derivatives market is based on contracts to sell an underlying asset. These contracts have a defined sale date, and once that date arrives, the buyer purchases the underlying asset immediately - regardless of its current value in the financial market. This is also known as futures trading.

Since the current market price has no impact on the market price that you are paying, the futures market is very different from a spot market. However, futures trading can be a good way to secure trades that the spot market would not allow, and the futures market is a very varied tool that can be used in a lot of interesting ways.

If you are new to different types of crypto and financial markets as a whole, then futures trading is best left until you already understand the spot market. Spot markets are much faster and more immediate, while futures trading is slower and requires a lot of planning and negotiation to get right.

How to Spot Trade

New spot traders might not know how to get started with the spot market, even though it is the underlying market holding up most of the basic trades they will make. It is entirely possible to use the spot market countless times without really understanding how spot markets work.

If you have not had any experience with making spot trades before, then there will be a point where you simply have to try one for yourself to get used to the process. Spot trades are relatively simple and easy to handle, so the hardest part is getting into a position where you feel confident enough to make that first trade.

Choose a platform

Joining an exchange, or finding a suitable peer-to-peer trading partner, is important. Most of the time, you will want to approach the spot market through an exchange that can provide extra protection and security for both your account and your traded assets. Get signed up and verified before you try to trade a crypto asset, so that you are prepared.

Remember that not all exchanges support all crypto assets. If you want to sell actual Bitcoin on the Bitcoin spot market, it is popular enough to be part of a trading pair on most platforms - but you might not be able to do a spot transaction with a more obscure currency on the same exchange.

Choose a currency

The underlying market is not the only part of spot markets that matters - the currency does too. The crypt you choose will change everything from the average spot price to the number of open positions in trades there will be. An obscure coin might have a lot of value, but it will not sell quite as quickly on the crypto spot trading market since fewer people will be buying it on a regular basis.

Most exchange spot markets will keep the same trading fees and market order systems for all currencies - the biggest difference will be the spot price between each currency. Some people choose currencies that are likely to have a profitable spot price, while others choose whichever one seems easiest to trade - the choice is up to you.

Create trading pairs

You will need trading pairs - a pair of crypto options that you want to trade. You can't use fiat currency to buy crypto outside of some exchanges and cash markets, but many still rely on you actually trading crypto for crypto. Choosing trading pairs is important since it impacts what you pay the spot prices in and how you will have to prepare for future trading.

Of course, this also means that spot trading relies on prediction, as well as a little bit of luck. Spot markets exist alongside other factors that adjust crypto values, and there is no guarantee that the sell price will increase at any given time. If a cryptocurrency starts to tank in value, then you are effectively losing money rapidly - but there is always a chance that you might bounce back.

Understand limit price and current market price

"Limit price" is an automated buying or selling option that allows you to have purchases auto-complete themselves when a currency reaches a specific value. You do not need to use any kind of specialist retail investor accounts or unique systems to do this - it just depends on whether or not a platform offers it.

This obviously is not an option for the futures markets since these markets are based on pre-arranged prices. However, most other markets can support market order limits like this, letting you buy at specific prices without having to keep one eye on the crypto value at all times.

Trade through the spot market

The best way to start trading is to simply trade. It is best to avoid complex trading options (like trading contracts from the cryptocurrency derivatives market or trading CFDs) if you are a new trader. Learning the spot market order and trade system is the best way to get yourself used to how these trades work.

Creating buy and sell orders is not hard, but it will be slightly different depending on the design and layout of each exchange. Considering that even the New York Stock Exchange is a suitable spot trading platform, there can be a lot of variety in its scale, scope, currency offerings and overall level of usability for new traders.

Getting used to trading can be easy, but it requires some trial and error. A new trader will lose money on a few trades here and there, especially if they are still trying to get used to the process, but it is not hard to start making profits once you understand the way that trades are meant to be carried out.