AnyDogecoin took the crypto industry by storm by rising up by a spectacular 40% over just 3 weeks from mid-March to first quarter of April in 2022. The surge happened after a famous DOGE owner, a celebrity business tycoon, announced about owning 9.2% stake in a popular social media site. Now, imagine the incredible amount a crypto trader would have made in the first half of April had he done a crypto spot trading on DOGE, say, in the early days of March! DOGE is one of the most popular cryptocurrencies and the coin is available for spot trading in any major crypto spot market. Read more about at MultiBank.io.
Overview of crypto spot trading
Spot trading, essentially, refers to a trading process where traders purchase as well as sell an investment asset at real-time market prices. It is called crypto spot trading when the investment asset is a cryptocurrency. The current or real-time price is officially termed as “spot price”.
In crypto spot trading, the transactions are handled right “on spot”, almost immediately, after the seller and buyer agree to complete the trading order.
In crypto spot trading, traders are able to trade cryptos in certain pairs, say BTC and USDT. For those new to the zone of crypto spot trading, it must be stressed that traders mostly prefer coins that command high liquidity. High liquidity translates to greater trading volume, and eventually improved scope of profit in crypto spot trading.
How does crypto spot trading work?
The process of crypto spot trading will commence with a trader placing an order to trade crypto in his/her preferred pair on the crypto spot market. A crypto spot market is a platform where spot trading takes place. Based on his/her buy order, the platform will match up the buyer with a potential seller on the same crypto spot market. If both parties agree to the offer, the trader will purchase at an agreed price. The buyer will have to make an upfront payment to buy the cryptos. As the spot market involves an upfront payment structure, it is sometimes also dubbed as “cash market”.
A crypto spot trader opts for market order to buy or sell his/her coin holdings. The goal is to sell off the coins as fast as possible at the best possible spot price.
In regard to delivery of the asset, it had traditionally been T and 2 days. The term “T” implies “trade date” and “2 days” refer to “2 business days”. But, that has mostly been the case with traditional investment assets. Crypto markets are open 24/7, thereby facilitating instant delivery for crypto spot trading.
After the purchase and delivery of the crypto asset, the crypto trader will wait for a while for a hike in the coin price. If the coin shows a surge, s/he would sell it off immediately for profit. It’s to note here, crypto spot traders largely focus on short-term holdings and frequent trades for faster yields within a brief time span. This is one reason why crypto spot trading mostly prefers coins that boast high liquidity.
Difference with HODL
HODL is a common jargon in crypto investment and trading scenarios. HODL aka Hold On for Dear Life refers to a form of investment in the crypto scene where investors purchase coins at a low price and hold on to them for a longer period. They surely sell those off after a certain point of time but the wait time is usually lengthy. The HODL process generally assures large profits and hence investors are ready to wait for an extended time.
On the contrary, in crypto spot trading, the whole process happens really fast. Crypto spot traders do not prefer to wait for long and they generally sell off their holdings as soon as possible- whenever the coin shows a profitable surge.
Overview of crypto spot market
As mentioned previously, a crypto spot market is a place that hosts and executes the entire process of spot trading. Whether you are a buyer or a seller in the crypto spot trading, you will have to create an account with a crypto spot market.
Now, the crypto spot market involves 3 main types- Crypto exchanges, OTC market, as well as P2P crypto spot market.
Crypto exchanges are the most popular crypto spot market platforms.
Now, there are two types of crypto exchanges for crypto spot trading- centralized and decentralized.
- Centralized exchanges
As the name says, the centralized exchanges for crypto spot trading are completely controlled by a centralized authority, say, the owner of the exchange. These crypto spot market platforms operate as a middleman between buyers and sellers who facilitate the trade. This crypto spot market deploys “order-book” protocol for matching buyers with sellers in crypto spot trading.
Another important aspect of this crypto spot market is that it extends custody services to traders. In other words, if you opt for a centralized exchange for crypto spot trading, you will have to store your holdings in the exchange platform for trading.
There are several benefits of using this crypto spot market for crypto spot trading-
- Faster crypto spot trading
- Higher liquidity
- Less risk of fraud traders as these crypto spot market platforms have made KYC mandatory for traders
However, these centralized crypto spot market portals also charge way higher fees compared to other counterparts.
- Decentralized exchanges
Any central authority will not govern a decentralized crypto spot market platform. As a result, the rules are a little more flexible with this crypto spot market in comparison to crypto spot trading on centralized exchanges. For example, in a decentralized exchange, there is no need to submit KYC. Also, the crypto spot market platform allows the flexibility to trade directly from a trader’s own wallet.
Decentralized exchanges generally charge low fees. However, these problems also suffer from problems like slow crypto spot trading and low liquidity.
In the OTC crypto spot market, the crypto spot trading is conducted through the help of brokers and dealers. It’s to note here that OTC crypto spot trading incurs lesser fees in comparison to exchanges.
A P2P crypto spot market takes place without the intervention of intermediaries.
The P2P platforms generally assure more flexibility to traders in various aspects of the trading process. It includes settlement time, selection of seller/buyer, payment methods etc. However, these platforms cannot offer the high security assured by exchanges.