few questions about trading

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few questions about trading

I have a few questions about trading

1: what is the different between spot trading and futures trading.

2:  between Stop Limit or Stop Loss and
OCO or order cancel order which is the safest for trading.

3: At what level is overleveraging.

4: between spot trading and futures trading which is highly risk and highly reward that uses leverages.

Lashini Fernando Answered question July 23, 2024
0

Spot trading is the basic type of trading, a trader buy coins and sell it. For example, you can be able to buy bitcoin, if the price increase, can sell for a stable coin and wait for bear market to buy bitcoin again. If you sell bitcoin to buy tether which is a stable coin pegged with USD, you have nothing to lose but gain if the market is bearish. If you buy bitcoin and the market increase, you will gain. If the crypto exchange support your local currency in your country, you can use it to trade unstable coins like bitcoin too.

Future trading is different, you can use future trading to leverage, which means while trading future derivatives, you can borrow extra asset.

It can be in 2x up to nx while n depend on the maximum leverage available on the exchange you are using. On some exchanges, you can borrow 100 times of your coins which will be 100x but also depending on the coin as they can have different maximum leverage. The more you leverage the more the risk.

For example, you leverage bitcoin at $40000 with 5x, if you have $100, you will be able to trade future with $500 which is 5 times of your money. Trading fee is not deducted in my calculation, but it will be very small.

Bitcoin at $40000
Trading fee is not included
5x leverage
If you buy (go long), your position will be liquidated at $32000
If you sell (go short), your position will be liquidated at $48000

You can go long (buy) or short (sell) in future trading. If you go short and the market price is decreasing you are making money unlike spot trading. If you also go long and the market is increasing, you are making money. Elsewise are losses.

You can trade future derivatives with 1x leverage, which means you do not have to borrow to trade, you can use your real money.

Lashini Fernando Answered question July 23, 2024
0
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