For cryptocurrency traders, brokers, and investors working in the market daily and checking every minute detail, there is a huge difference between Spot Trading and Margin Trading. In layman’s terms, Spot Trading is the trade, buying, and selling of digital assets and cryptocurrency on the spot and with the updated prices that are present in the market at the moment. Whereas, in Margin Trading the user takes a certain loan from the exchange which they are using. And based on the sales and purchases from that loan, the loan and a certain percentage of profits are returned back to the exchange. So, it means that Spot Trading is done on digital assets and currencies that the user possesses at that moment. And in Margin Trading the user can take a loan and continue their trade with the new amount that he has. 

What is Spot Trading?

Spot trading is the process of buying and selling cryptocurrencies at the current market price. It is the most common type of trading in the crypto market, and it is done on spot markets. Spot markets are where traders buy and sell assets for immediate delivery.

There are three key concepts to understand in spot trading: spot price, trade date, and settlement date.

The Spot Price

Spot Price is the current market price of an asset. It is the price at which the spot trade is executed.

The Trade Date

Trade date is the day the trade order is executed in the market.

The Settlement Date

Settlement Date is the day the assets involved in the transaction are actually transferred.

For crypto, the settlement date is typically the same day as the trade date. However, this may vary across different exchanges or trading platforms. Given the immediate nature of spot trading, a trader must have the full amount of funds to pay for the trade. For example, if a trader or an investor is looking to spend USDT 500 on BNQ tokens or qitcoins, they need to have that amount ready in their account to be paid. Spot Trading has its own benefits, some of these benefits are:

• Liquidity

• Transparency

• Low Fees

With its benefits, Spot Trading brings in its own risks as well. Some of these risks are:

• Volatility

• Fraud

• Security

Given this spot trading is a good option for traders who are looking to buy and sell cryptocurrencies at the current market price. However, it is important to be aware of the risks that are involved with this as well.

What is Margin Trading?

Margin trading involves using borrowed funds to finance trade, allowing traders to open positions without paying the full amount from their own funds. This sets it apart from spot trading. To grasp the concept of margin trading, it's essential to understand the terms leverage, margin, collateral, and liquidation.

Leverage

Leverage denotes the utilization of borrowed funds to cover a trade. For instance, if a trader or an investor wishes to acquire $5,000 worth of QTC with a leverage factor of 5x, they only need to contribute $1,000 themselves, while the remaining $4,000 is borrowed from the exchange or trading platform. Essentially, the trader borrows funds to amplify their position by a factor of 5. The value of the account balance, calculated based on the current market price minus the borrowed amount, is known as equity. The available leverage varies across different exchanges and trading platforms.

Margin

Margin indicates the requirement for maintaining a certain level of equity as the market price of an asset fluctuates in real time. When the equity level falls below a predefined threshold, also known as the margin requirement set by the exchange or trading platform, the trader receives a margin call. At this stage, they must either sell a portion or the entirety of their position or deposit additional funds into the account to restore the equity value to the margin requirement level.

Collateral & Liquidation

Collateral & Liquidation involve using the assets held in a trader's account as collateral for a loan. In the event that a trader fails to meet a margin call, the exchange or trading platform can sell the assets (referred to as liquidation) in the account and utilize the proceeds to repay the loan.

Both Spot Trading and Margin Trading are used by traders, investors, buyers, and sellers of cryptocurrencies at different times. Both these factions have their pros and cons, and each of them can outweigh the other. They can be used to set bids according to what the trader would like at the moment, and at the same time, they can help the trader plan ahead with what they want to do with their digital assets.