Cryptocurrency trading has become attractive for investors looking for volatile assets to increase their profits. Initially, crypto exchanges were the only places to trade with cryptocurrencies, but now regular brokers also offer crypto CFD trading.

Although these brokers have a smaller selection of cryptocurrencies available for trading, introducing crypto CFDs brings other benefits, including margin trading. However, it remains to be seen which trading style is better – spot trading or CFD trading. In this article, we will compare both trading styles and determine which one is best suited for different types of traders.

Crypto Spot Trading

One of the easiest ways to trade with cryptocurrencies is through spot trading. This involves buying and selling cryptocurrencies at the current market price by opening specific orders. The price you see now is the price you are trading with. If you anticipate that the price of Bitcoin will rise shortly, buying it on the spot market and selling it later for a profit is a good option. As you can observe, spot trading is a very simple and straightforward way of trading with cryptocurrencies.

Cryptocurrency trading is an easy-to-use trading style, but it has some downsides. People who trade with cryptocurrencies are referred to as takers as they take from the liquidity pool since their orders are executed immediately. When a person places a buy or sell order on the spot market, the system automatically seeks to match two parties. For example, if you place a buy order on the spot market, the system will match you with a seller offering the price you want to buy. However, to ensure that the spot market operates instantaneously, some exchanges require high levels of liquidity, as there are times when it is difficult to match two parties. Spot traders are called takers since they take from liquidity pools and typically pay higher trading fees.

Crypto Margin Trading

Crypto margin trading is where you speculate on the future price of cryptocurrencies, and the broker increases the amount of funds you can trade with. When you open a crypto order using margin, you can choose the amount of margin you want to use. For instance, if you use a 10:1 margin and want to open an order for $100, you can open an order worth $1,000, with $900 provided by the broker as borrowed funds. This is an excellent trading strategy for those who have a small amount of trading capital.

Margin trading can be risky, and not everyone can use it successfully. Margin traders, also known as makers, trade with futures contracts, which means they are essentially betting on the prices of assets to either increase or decrease. For instance, if a trader opens a long position and the price increases, they will make profits. Conversely, if they open short positions, a price drop would generate profits.

Traders who use margin trading create orders that will be available in the future, which helps increase liquidity in the market. As a result, many spot traders trade with these margin orders. While margin traders benefit from lower trading fees, they must also pay additional margin fees.

Which one should you trade?

When it comes to trading, you have two options to choose from: spot trading or day trading. However, the correct answer is to use both. No one can definitively say that one is better since both are very common and popular trade methods. Each has advantages and disadvantages, and we should take advantage of both. 

Spot trading is the way to go if you are looking for long-term trades and don’t think the price will go in one direction or another soon. Spot trading is a short-term HODL, where you buy crypto for its current value and sell it when the price increases to make a profit. This is a great trading style with the money you can spare. You can buy a token and wait until the price goes up, and you don’t have to worry about the money you invested since it’s money you can afford to set aside.

Margin trading is an excellent option for those looking for higher profits but willing to take on higher risks. Suppose you are willing to keep an eye on the market throughout the day and eager to learn about various aspects of cryptocurrencies and trading in general. In that case, using a margin is the best way to trade. Margin trading increases your buying power, allowing for significant profits without a large investment.

However, it is best to use both trading styles and not limit yourself to just one. When you see a good opportunity for a spot trade, could you take it? Similarly, you must recognize the potential profits when you see a good margin option.

FAQs on crypto spot vs margin trading

Is spot trading in cryptocurrencies considered risky?

Crypto spot trading is one of the least risky trading styles. During spot trading, you purchase and sell at the current market price, and you can decide when to trade as you are not limited to margin calls and future fees. You can purchase cryptocurrency on the spot market and hold it until the price rises before selling. This makes spot trading an easy and secure way to trade cryptocurrencies.

Is it advisable to trade cryptocurrencies using margin?

When trading with cryptocurrencies, using a margin has both advantages and disadvantages. Ultimately, whether to use a margin depends on an individual’s trading style and goals. Cryptocurrencies are known for their high volatility, and therefore, it is possible to make good profits even with a small trading balance without using a margin. However, margin trading can increase profits even further, allowing traders to multiply their balance several times with just a few successful margin trades. It is important to note that a significant risk is associated with margin trading. If the price moves in the wrong direction, traders can suffer significant losses in a very short amount of time.