Cryptocurrency for Beginners: Spot or Margin?

*Collaborative post.

Crypto trading is a way to make money on the cryptocurrency market, taking advantage of its volatility and price changes. The essence is to buy and sell crypto at different prices and sometimes even on different platforms. There are many trading tools offered on crypto platforms. Some of them will be too challenging for a novice trader, and others are less. Here are some of the most popular tools:

  • spot trading;
  • p2p exchange;
  • futures trading;
  • margin.

Let’s see which tool will be perfect to start trading cryptocurrency.

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Spot Trading

Spot means a person purchases or sells coins at the current prices, where assets are accrued to a trader immediately or shortly. That is why it is called “spot” – a person pays and receives coins on the spot.

Margin

This tool means a person borrows funds to enter the market with a better position and, thus, to receive a bigger profit. The main difference between margin and spot trading is that using the margin tool, a person pays only a small part of the sum from own funds, and all the rest funds are borrowed.

The key things to know about margin:

  • Leverage allows multiplying the initial amount of funds and entering the market with a more profitable position. For example, having the initial sum of $100, a trader can use a leverage of 5X and, in fact, enter the market with $500. That is, one borrows funds of $400 from an exchange. Leverage can be different depending on the platform you use.
  • Margin. Since the crypto market fluctuates constantly, prices do not keep at the same level. When the equity level decreases, crossing an established threshold (margin), you will have to add funds to your account or sell some assets (depending on where the market moves) to maintain the equity position set by margin requirements.
  • Collateral. Your initial investment (in our case, $100) serves as collateral. If you are not able to react to a margin call and add coins to your position, a platform can liquidate your position, and you will lose your $100. That is the biggest risk in margin trading.

Talking about beginner traders, we recommend using spot markets first and, along with receiving more practice, trying margin with the minimum leverage size. You can buy cryptos and apply any trading tool on the WhiteBIT exchange.

 

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