## Spot Trading Introduction: A Mandatory Course from Newbie to Trader

The spot market is the starting point for cryptocurrency trading. Unlike other trading methods, spot trading is the most direct: you use funds to purchase assets and immediately obtain ownership. This "tangible" trading method has led many newbies entering the crypto space to choose to start with spot trading.

### What is spot trading? A simple understanding

Spot trading is instant trading. You either buy assets hoping to sell them for a profit after the price rises, or you short sell expecting a decline. In either case, the core logic is to predict price movements. Unlike futures, which require paying interest or financing rates, spot trading only uses your own funds—this is also why it is relatively more controllable in terms of risk.

The spot price (i.e., the real-time market price) changes at all times. When you place a market order, the transaction price depends on the market depth at that moment. Sometimes you want to buy 10 ETH, but the market only has 3 available at your target price, and the remaining portion has to accept a higher price. This price slippage is particularly noticeable in large transactions.

### Where does spot trading take place?

Spot trading mainly has two scenarios: **centralized exchanges** and **decentralized exchanges (DEX)**, as well as **over-the-counter trading (OTC)**.

**Centralized exchanges** act as intermediaries. You deposit funds into the exchange account, which is responsible for asset custody, risk control, user authentication ( KYC ), ensuring that transactions are fair and transparent. In return, the exchange charges a fee. This model is safe and has high liquidity, but you need to trust the exchange.

**Decentralized exchanges** are completely different. Transactions occur directly between wallets and are automatically executed through smart contracts. There is no need to register an account, making transactions more private. However, the problem is that once something goes wrong, there is no customer support, and the lack of KYC also means no recourse. Some DEXs use an order book model, while others use an automated market maker ( AMM ) model— the latter allows users to exchange tokens from liquidity pools, with liquidity providers earning fees from this.

**Over-the-counter trading** is the oldest method. Two traders negotiate directly and complete transactions through tools like phone or IM. Large trades often choose this method to achieve better prices because they are not constrained by the order book, resulting in smaller slippage.

### Spot trading vs Futures trading: Key differences

This is a place where many newbies easily get confused. Spot trading is "payment and delivery at the same time"—you immediately obtain the asset. Futures trading, on the other hand, is a contract with a delivery time in the future, where both parties agree to settle at a predetermined price on a specific date in the future. Most futures are settled in cash rather than through physical delivery.

Spot has higher transparency - prices are entirely determined by market supply and demand. In contrast, futures prices are influenced by multiple factors such as financing rates and mark prices.

### Spot trading的实操流程

Spot trading is very intuitive on any exchange. You need:

1. Select trading pair (for example, BTC/USDT)
2. Determine the order type: Market order (execute immediately at the current best price), limit order (set target price and wait for execution), stop-loss order, etc.
3. Place an order after entering the quantity and price.

For example, if you want to buy BTC with 1000 BUSD, enter the amount and place the order, the exchange will execute it immediately, transferring BUSD to the seller and BTC to your account. The whole process is completed in seconds.

### The advantages and pitfalls of spot trading

**Advantages are obvious:**

The pricing mechanism is pure—only looking at supply and demand relationships, without involving complex derivative pricing models. This simplicity brings transparency.

The rules are simple – you invest $500 to buy BNB, if you make a profit, you profit, if you incur a loss, you lose. The calculation of risk and return is clear at a glance.

There is no need to worry about liquidation - unlike futures and margin trading, which have the risk of liquidation, spot can be "set and forget". You can enter and exit positions at any time without staring at the screen.

**Disadvantages also exist:**

Holding cost - if you trade commodities, you must accept physical delivery. Although cryptocurrencies are digital assets, you bear the responsibility of self-custody.

Price risk - Spot trading has no leverage, and profits are relatively limited. With the same capital, futures and margin trading can take larger positions, and the potential returns are also higher - of course, the risks increase exponentially.

Liquidity constraints - large orders of certain low liquidity assets can easily lead to significant slippage. Even leading coins like BTC will face slippage issues with extremely large orders.

For enterprise-level applications, the spot market is also not stable enough. For example, companies engaged in overseas business need a stable exchange rate, and relying entirely on the spot forex market can make financial planning unreliable.

### Who is spot trading suitable for?

If you are a newbie, spot trading is the friendliest choice. There is no leverage pressure, and the rules are simple and straightforward. You can gradually accumulate trading experience, learn technical analysis and fundamental judgment, and then consider more complex strategies.

Spot trading is the most direct way of asset allocation. Instead of getting caught up in the complex rules of derivatives, it is better to first solidify the fundamentals of spot trading.