In this article, we are going to talk about one of the trading methods in the financial markets. The method we describe here is the easiest way to trade and earn profit from the financial markets. If you have the experience of buying Bitcoin or any other digital currency and hold it, you are familiar with this method, which is called “Spot Trading”. In the following, we will provide a detailed explanation with a simple statement about this type of transaction and its difference from other transaction methods.

What is “Spot Trading”?

To trade in the spot market, you must pay for the asset before receiving it. Spot is a one-sided market. The easiest way to trade and invest in financial markets is spot or cash transactions. In spot transactions, assets and financial instruments including stocks, forex and cryptocurrencies are bought or sold directly. Transactions in the spot market are immediate and are done both directly (otc) and exchange-based. There is no leverage in spot and you can only use your available capital for trading. You can easily do this type of transactions in centralized exchanges according to certain rules with some fees. Cash market or spot market is a financial market where the buyer can make immediate transactions with the seller using fiat currency or another asset.

Buying an asset with the hope of selling it at a higher price and selling assets and buying it at a lower price is the way to earn profit in spot trading. The price in this market is momentary and fluctuating, and you can buy or sell assets by placing an order, but the price of the asset you want may change when you place your order. Another point is that when you place an order to buy a specific currency, there must be a supply of that currency in the market according to your demand. For example, if you want to buy 5 bitcoins, but only 4 bitcoins are offered at that moment, to buy the remaining 1 bitcoin, you have to change your price, which may be offered again at the price you buy. Whereas cryptocurrency markets work 24/7, spot transactions in exchanges are done without any interruption and immediately.

The difference between spot trading and futures trading

The difference between spot transactions and futures transactions is that in the spot transaction, your transaction is immediate and you actually receive a specific asset such as digital currencies in exchange for payment, but the transaction in the futures market is only a contract between you and the exchange in which You guess how the price of the asset you want will change in the future and you will gain or lose because of it. Another difference of spot transactions is that it is not possible to use leverage in these transactions and enter into the transaction with the amount of your original capital, and this makes trading in the spot market less risky than futures transactions. However, If you are a good analyst, futures trading can be many times more profitable than spot trading.

Types of trading methods in the spot market

In spot trading, you have 4 ways to trade, and we will explain each of them:

1. Market-Order: In the first method, which is called spot market order, the currency price is determined by the market, and you only specify the amount you want, and after placing the order, your property will be delivered immediately.

2. Limit-Order: In the second method, you propose a price for the currency you want and set your order, when the price of the currency you want reaches the price you offer, your order is automatically opened and the transaction is carried out, which is called a limit order transaction.

3. Stop-Limit: In the third method, which is called stop-limit, you can place an order with a condition. For example, according to your analysis, if the price of Bitcoin rises above a certain price, it will grow a lot after that. In this case, you can place an order in the stop-limit section. You must enter that conditional price in the stop section and your offer price in the limit section, and when the market price reaches the stop, your order will be automatically activated. Also, this method allows you to set a loss limit for your capital and sell your digital currency automatically when the price drops below a certain amount. You can set as many transactions as you need.

4. OCO (One Cancels the Other): The fourth method is called OCO and some exchanges like Binance offer you this possibility. In this method, profit and loss limits are determined at the same time. In this way, 2 buy and sell orders are set with your price conditions, and if the market price reaches any of your price conditions, that order will be activated and the other order will be deactivated and deleted.