Essential Guide to Cryptocurrency Trading: Clarifying the Key Differences Between Spot, Leverage, and Contract Trading

Starting with Spot Trading to Understand the Market

The most basic trading method is spot trading, which is straightforward—bring your money to buy something, and once paid, the goods belong to you. Applying this to the Bitcoin world, the logic is the same: if you buy one Bitcoin with 6000 USDT, that coin truly resides in your wallet, giving you full ownership and control, allowing you to transfer it to a cold wallet or send it to others.

The advantage of spot trading is clear ownership and controllable risk—you will never hold fewer or more coins due to market fluctuations. The obvious downside is that profits are one-dimensional; you can only profit if the coin’s price rises. When the market falls, you either cut losses and exit or are forced to hold long-term, with no other options.

Leverage Trading: Amplify Your Investment with Borrowed Funds

Leverage trading is an upgraded operation based on the spot market. The core logic is to use a small amount of your own funds as collateral to borrow more funds from the platform to expand your trading scale.

Long Scenario: Suppose you are bullish on a certain coin. You can collateralize your coins or USDT to borrow USDT, then use this borrowed USDT to buy more of the coin at the current price. When the price rises to your target, sell to repay part of the loan, and the remaining profit is your gain.

Short Scenario: Conversely, if you judge that a coin is about to decline, you can borrow that coin from the platform, sell it at the current high price for USDT, and when the price drops, buy back the same amount of coins with less USDT to repay the loan. The difference in coin quantity constitutes your profit. For example, in the BTC/USDT trading pair, going long requires borrowing USDT, while going short requires borrowing BTC.

Leverage multiples are usually set by the trading platform, typically between 1x and 100x. Smaller multiples are more suitable for risk-averse traders, while aggressive traders may pursue higher multiples. It’s important to note that leverage operations not only incur interest costs but also involve borrowing fees and trading commissions, adding to the overall pressure.

Perpetual Contracts and Futures Trading: Simplified Leverage Upgrade

Futures trading can be seen as an optimized iteration of leverage mode. It uses the mechanism of contracts that track price differences, allowing traders to operate without actually borrowing or returning coins—just select the leverage multiple before trading. Compared to the cumbersome borrowing and repayment process in leverage trading, futures trading’s operation logic is greatly simplified, making it accessible for beginners.

Futures are divided into two types based on settlement time:

Perpetual Contracts: As long as you don’t get liquidated, you can hold the position indefinitely, offering more flexibility and suitable for traders with patience.

Fixed-term Contracts: Including weekly, bi-weekly, quarterly, etc., these automatically close and settle at expiration, suitable for short-term swing trading.

Regarding settlement methods, there are two options: coin-margined (settled in the traded coin) and USDT-margined (settled in fiat currency). Investors can choose flexibly based on their needs.

Practical Comparison of Three Trading Methods

To make the differences more intuitive, let’s illustrate with concrete examples:

Spot Trading Example: Investor A invests 200,000 yuan to buy Bitcoin at 2000 yuan per coin, purchasing 100 BTC. If the price rises to 3000 yuan, cashing out yields a profit of 100,000 yuan, with a profit rate of 50%.

Futures Trading Example: The same bullish outlook on Bitcoin. Investor A chooses to open a 5x leveraged long position on 100 contracts. This requires only about 20 BTC (roughly 40,000 yuan) as margin to control the value of 100 BTC. When the price reaches 3000 yuan, closing the position yields the same 100,000 yuan profit, but with a profit rate of 250%.

Key Difference: The absolute profit in both spot and futures is the same (100,000 yuan), but futures trading achieves the same return with much less capital, greatly improving capital efficiency. This means the remaining 160,000 yuan can be used for other investments, such as financial products, potentially generating over 20,000 yuan additional income.

Risk Warning: Leverage in futures trading also amplifies losses. If Bitcoin’s price drops to 1500 yuan, with 5x leverage, the investor would also lose 50,000 yuan. If the loss exceeds the initial margin, the system will forcibly liquidate the position, closing it at market price, causing significant capital loss. Therefore, setting stop-loss and take-profit points and timely margin replenishment are essential to prevent liquidation.

Core Differences Between Leverage and Futures Contracts

Operational Mechanism: Leverage relies on borrowing coins from the platform to amplify positions, involving borrowing fees and trading costs; futures pre-select a multiple, skipping the borrowing process, saving intermediate costs.

Definition Logic: Leverage involves using small principal to conduct multiple times the original amount in spot trading; futures are agreements between buyers and sellers on delivering an asset at a specific price at a future time, more akin to betting on price movements.

Regulatory Framework: Leverage trading is designed by individual platforms, with investors interacting directly with the platform; futures are usually designed and approved by exchanges with higher standardization and regulatory oversight.

Trading Characteristics: Leverage supports 24-hour trading, global market liquidity, a wider variety of assets, flexible risk control, two-way trading, and low entry barriers; futures offer high leverage, transparency, strict organizational structure, high trading efficiency, and guaranteed settlement.

Margin Requirements: Whether leverage or futures, traders need to deposit margin as collateral, usually a small percentage of the total contract value. This allows traders to control large contract positions with relatively little capital, greatly enhancing trading flexibility and capital efficiency.

Choosing between these trading methods depends on your risk tolerance, capital size, and trading cycle. Beginners are advised to start with spot trading to familiarize themselves with the market and gradually transition to leverage or futures trading.