The Difference Between Spot and Futures Trading on WEEX: Which Is Right for You?
The Difference Between Spot and Futures Trading on WEEX: Which Is Right for You?
Securities trading contracts in the cryptocurrency market are concluded in various forms. This diversity is primarily due to the speculative policy followed in cryptocurrency financial markets, as well as the investor's financial position, which leads them to adopt one of these contract types: either spot trading or futures trading.
What is meant by bilateral trading contracts?
These are contracts where the contractual relationship is based on two main parties: the buyer and the seller.
Where do spot and deferred trading contracts fall?
Both spot and deferred trading contracts fall under the category of bilateral trading contracts because the contractual relationship is primarily based on the buyer and the seller, without the involvement of a third influential party in the contract.
What is meant by a spot contract or spot trading?
These are contracts that take place on a specific date, and their parties are committed to executing them immediately by transferring the ownership of the cryptocurrencies involved in the transaction within a short period not exceeding 48 hours from the conclusion of the deal.
Why are they called spot contracts?
Because the procedures for transferring ownership and paying the price begin from the moment the transaction is concluded, and within the specified period. Transaction prices are determined through market pricing mechanisms, whether based on the highest price offered by the buyer or the lowest price accepted by the seller.
What is meant by spot trading for digital currencies?
Dear trader, in the spot trading market, you can buy and sell cryptocurrencies, such as BTC and ETH, with immediate delivery.
Cryptocurrencies are transferred directly between traders in the digital currency market (the buyer and the seller). In the spot trading market, you have direct ownership of the digital currencies—which you can easily find via the WEEX platform—and you are entitled to many economic benefits, such as the right to vote on fundamental forks or participate in staking.
What are the advantages of spot contracts (spot trading)?
What distinguishes spot contracts is the speed and flexibility in completing the deal, where the price is paid and the cryptocurrencies subject to the deal are received immediately or within a very short period. It is required that customer orders be more precise regarding the deal and its subject, such as the necessity to specify the type and nature of the security, the required and offered quantities, and the necessity to specify the price at which the deal is executed.
However, dear trader, be aware that in spot contracts, there is no requirement regarding the quantity of securities involved in the deal, while the prices of securities are determined by the law of supply and demand within the framework of free competition.
What is the goal of dealing with spot contracts?
Investors resort to spot contracts by buying securities and holding them, and their goal is as follows:
1. Employing their capital, diversifying financial portfolios, and being content with the dividends and rights related to these securities.
2. Speculating on prices by reselling when the market price improves and benefiting from the price differences between the purchase price and the selling price, noting that the rise in the price of these securities is not significant compared to futures contracts.
3. Seeking to achieve both goals by benefiting from the returns of the held securities, represented by the profits and rights related to them, in addition to the profits intended to be achieved from selling them when their prices improve in the market.
What are the advantages of "Spot Trading"?
A. Direct Ownership: You will be the actual owner of the asset, such as BTC, and accordingly, you can withdraw it to your wallet.
B. Low Risk: It differs from futures contracts in that there is no risk of forced liquidation found in futures contracts; however, the loss is only with the decrease in the price of the asset you own.
C. No Leverage: Trading is done using only your own capital, which makes it easier to use for beginners.
D. Simplicity in Execution: This suits beginners, as you can buy at the market price for immediate delivery.
How does spot trading work?
Once you buy a digital currency in the spot market, the amount is deducted from your account, followed by the immediate deposit of the currency into your wallet. These markets operate around the clock, and we find this on the WEEX platform continuously.
What are the risks of spot trading?
Although it is safer—especially for beginners—the trader always remains in a position of direct market price fluctuations, especially with a decrease in the market value of the asset.
What is the reason for the emergence of futures contracts in financial markets?
The development of the investment field prompted financial engineering experts to innovate new financial instruments that meet the desires of investors, including financial derivatives, with the intention of controlling future fluctuations and various risks facing financial asset investments. Futures contracts represent one of the most prominent financial derivatives, as they were designed to cover the needs of contractors outside organized financial markets in particular.
Why are futures contracts considered popular in the financial markets field?
This type of contract is popular within organized financial markets because they are financial instruments that do not require huge capital at the beginning of the investment, in addition to the fact that performance in them is often deferred to later dates.
When did futures contracts appear?
"Forwards Contract" appeared in the late nineteenth century in agricultural regions in the United States of America, where they were first used for agricultural crops. The goal was to manage production price risks before moving to the field of investment in various financial assets globally to manage the risks of exchange rate fluctuations and future revenue flows and liabilities.
What is meant by futures contracts?
The concept of futures contracts in finance: The International Monetary Fund defined a futures contract as an agreement between two parties to deliver the underlying asset, whether real or financial, in specific quantities and at an agreed-upon contract price on a specific date.
What can be learned from this previous definition of futures contracts?
It is understood from this definition that this contract does not result in ownership, possession, delivery, or receipt. The price and the item are deferred to the day of liquidation, meaning that there are no immediate effects of the contract, but they are deferred to the settlement day, which is usually cash-based rather than physical delivery.
There are two types of prices in futures contracts: "Strike price" and "Forward price".
What is the difference between the two types of prices in futures contracts?
Type 1: "Strike price"
This is the price agreed upon to execute the forward price, and it is determined between the parties according to supply and demand, and the extent of each party's vision to benefit from this price in the future, with it not changing from the date of the contract's conclusion to the date of its execution.
Type 2: "Forward price"
This is the price of the currency or asset subject to the futures contract in the future, and this price changes over time as market prices change.
It can be said that the strike price is a forecast of the forward price at the date of the contract's conclusion, but it is not a condition that they be equal on the execution date.
What are the elements of a futures contract?
A futures contract consists of essential elements without which it cannot exist, represented by the first party (the contract buyer), who is the party that pays the amount agreed upon in the contract to the second party in exchange for obtaining the underlying asset. This takes place on the execution date specified in the contract, and both parties enter into negotiations on specific terms according to their desires and needs.
In addition to the second party (the contract seller), who is the party committed to providing the underlying asset on the date agreed upon and specified in the contract in exchange for receiving the amount agreed upon from the other party (the buyer).
Futures contracts are negotiated directly without an intermediary, either in an organized financial market or an unregulated financial market, and both parties are obligated to respect their commitments.
What distinguishes the WEEX platform is that it is one of the leading cryptocurrency trading platforms, as it focuses primarily on futures contracts (USDT-M) and spot trading. It features an easy-to-use interface, copy trading, and provides unparalleled competitive funding rates. The WEEX platform also provides fast and secure trading with full support for altcoins, in addition to not requiring mandatory KYC verification.
How is profit or loss determined in futures contracts?
Profit or loss in a futures contract is determined through the relationship between the forward price of the asset, or what is called the "Spot price", and the "Strike price" agreed upon under the contract between the parties. When the price of the asset rises on the execution date of the contract, meaning it becomes higher than the price agreed upon in the contract (the strike price), this leads to a profit for the buyer, and conversely, it represents a loss for the seller. When the opposite happens, the seller makes a profit, which is conversely a loss for the buyer.
What are the types of futures contracts?
There are different types of futures contracts, but the most famous are:
A. Currency futures contracts (the subject of our article).
B. Interest rate futures contracts.
What is the importance of currency futures contracts?
The importance of futures contracts lies in the fact that they are a tool used to manage the risks to which exchange rates are exposed, and they work to fix the exchange rate for transactions on their due date.
The best way to manage exchange rate risks is by using futures contracts, and futures contracts are used to reduce the risk of currency exchange rate volatility by concluding futures contracts for exchange rates in global markets.
How to trade futures contracts on the WEEX platform?
After you sign up on the WEEX platform by creating your own account and enabling two-factor authentication (2FA), you just need to follow the following steps to trade futures contracts:
1. Log in to your account on the WEEX platform
If you have an account on the WEEX platform, log in directly to the futures trading section from the dashboard that appears in front of you on the screen. If you do not have an account yet, create an account for yourself via the WEEX platform and follow the steps in the WEEX platform guide on setting up an account on the WEEX platform. After authenticating it, go to the futures trading section from the dashboard.
2. Getting to know the futures interface available on the WEEX platform
After entering the futures trading section from the dashboard, you will find an interface more advanced than the spot trading interface, and this interface includes the following:
A. Order Book: All active buy and sell orders for the futures contract you have selected are recorded here.
B. Position Details: Displays your open futures positions, including leverage, margin, and unrealized profits or losses.
C. Trading Pair: To choose between the futures trading pair, for example, BTC/USDT.
D. Charts and Analysis: Refers to current price charts and indicators to guide your decisions in the market.
3. Selecting the futures contract and trading pair
To choose the futures pair you want to trade, such as BTC/USDT futures, click on your preferred pair to access the trading options.
4. Setting the leverage and specifying the order type
One of the advantages of futures trading via the WEEX platform is that it allows leverage, which allows you, dear trader, to manage large positions with little capital. However, it increases the risks.
How to configure leverage?
To choose leverage, select the leverage level based on your risk tolerance, as the WEEX platform offers multiple leverage options for various and diverse pairs.
How to specify the order type?
A. Market Order: Execution happens immediately at the current market price.
B. Limit Order: Execution happens only at the price specified by you, dear trader.
However, be careful: Leverage carries the risk of liquidation, especially if the market moves significantly against you. Your position may be closed, costing you your initial funds.
5. Adding your futures order
After setting the leverage and specifying the order type, you must follow up on your futures order with the following:
A. Specifying the amount: This means entering the quantity of the asset you want to trade, dear trader.
B. Verifying details: You must verify the amount, leverage, and order type.
C. Choosing buy or sell: To buy a long position, click buy; i.e., betting on a price increase. To sell a short position, click sell; i.e., betting on a price decrease.
6. Monitoring your futures position
Monitor your position well; this is necessary after adding the order. The position information section shows you the following:
A. Profit/Loss: Provides updates on your unrealized profits or losses.
B. Margin Status: You must monitor your margin to avoid liquidation or a margin call.
C. Stop Loss and Take Profit: To stop loss and take profit, you must set these orders to automate exiting and control risks.
7. Closing and determining your position
Before exiting your position, you must be prepared and do the following:
A. Accessing position information: Select the futures contract you want to close.
B. Selecting close: Click close position, and the WEEX platform will complete the trade at the current market price.
Do not hesitate and start trading futures now via the WEEX platform; it opens doors for you to profit from cryptocurrency price fluctuations with added flexibility.
Frequently Asked Questions?
- What is the difference between spot trading and futures trading?
Spot trading: Transactions are executed immediately at current prices.
Futures trading: An agreement to buy or sell a cryptocurrency at a specified price on a future date. It is the opposite of spot trading.
- What advantages do futures contracts provide?
Futures contracts allow betting on price directions, providing flexibility to profit from rising or falling markets.
- When does an investor choose between spot trading and futures trading?
An investor may resort to concluding a contract to execute it within a short period for the purpose of employing their savings, as we find in spot trading contracts.
Or they can delay its execution to a later date if they seek to achieve benefits according to the requirements and data they rely on, which is what we find in futures trading contracts.
- What is the difference between spot trading and futures trading?
Spot trading: Instant execution, the trader has actual ownership, and risks are lower.
Futures trading: The agreement is on a future price, i.e., later. The trader does not have the right of ownership over the asset, and risks are very high due to leverage.
- What is the importance of leverage in futures trading?
Leverage makes futures trading highly effective in the way capital is managed efficiently. Through futures contracts, you, dear trader, can open a position for one BTC futures contract with a small fraction of its market value.
- What is the effect of not having leverage in the spot trading market?
Spot trading does not offer leverage. For example, when buying one BTC in the spot trading market, you need thousands of dollars. Assuming you have 1,000 USDT available, you cannot make the purchase except within the limit of 1,000 USDT of BTC.
- What is the difference between futures prices versus spot trading prices?
The buyer and seller determine digital currency prices through an economic supply and demand process. The spot price is the prevailing price for all transactions in the spot trading market. On the other hand, the futures contract price depends on the prevailing spot price plus the futures premium. The futures premium can be positive or negative.
- What do positive and negative premiums indicate in futures contracts?
A positive premium indicates that the futures contract price is higher than the spot price, while a negative premium indicates that the futures contract price is lower than the spot price. Also, changes in supply and demand lead to fluctuations in the futures contract price.
And now, dear trader, after presenting a tour between spot trading and futures trading and clarifying the difference between them, you can choose what is most suitable for you according to your experience in trading in the cryptocurrency market and choose what suits you, whether you are a beginner or have extensive experience.
Disclaimer:
The WEEX platform and its affiliates provide digital asset trading services, including derivatives and margin trading, only where legal for eligible users. All content is general information, not financial advice—please seek independent advice before trading. Cryptocurrency trading involves high risks and may lead to total loss. By using WEEX services, you accept all related risks and terms.
Never invest more than you can afford to lose. Review our Terms of Use and Risk Disclosure for more details.
