What are the Differences Among Spot Trading, Margin Trading and Futures Trading

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Trading Type Characteristics Pros Cons
Spot Trading

Buy and sell orders are matched based on price and time priority to enable direct exchange between digital currencies.

Your Crypto holding amount remains unchanged no matter the price goes up or down.

Short selling is not available. You can only make profits when crypto price goes up.
Margin Trading

Magnify the initial capital with potentially amplified gains.

Use leverage to maximize profits by buying long or selling short.

You need to pay interests on borrowed coins/tokens and bear the high risk of double loss andforced liquidation.
Futures Trading

Making profits from the rising/falling prices of cryptos by buying long or selling short based on your judgment.

 Short sell/long buy with higher leverage to maximize your actual gains. Futures contracts have no expiration or settlement date. 

You need to bear the high risk of double loss and forced liquidation.

 

In addition, Futures Trading can be divided into the following two types:

Contract Type

 Characteristics

Linear Contract

(U-Margined Contract)

e.g. BTCUSDT

1. User-friendly for short sellers. 
2. Traders only need to hold USDT to open positions.
3. When the price goes down, you will not suffer extra loss caused by opening positions with non-stablecoin.
4. Lower risks and smaller fluctuations.
5. Use USDT, USDC, etc. as pricing and settlement currency.

Inverse Contract

(Coin-Margined Contract)

e.g. BTCUSD

1. User-friendly for long buyers 
2. Traders need to hold settlement coins like BTC or ETH.
3. When the price goes up, you can make extra profits from holding BTC or ETH long positions.
4. Higher risks and larger fluctuations.
5. Use USD as pricing currency and BTC or ETH as settlement currency.

 

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