| Type | Characteristics | Pros | Cons |
| Spot Trading | Transactions will be matched based on the priority of price and time to directly realize the exchange between digital currencies. |
The number of coins/tokens will remain unchanged no matter the price goes up or down. |
Short selling is unavailable, you can make profit through the rise of coin/token price only. |
| Margin Trading |
Magnifying the actual funds with potentially amplified gains, but at the same time, users will bear the risk of doubling the loss. |
Short sell/long buy to maximize your actual gains. | You need to bear the high risk of double loss and forced liquidation. |
| Perpetual Trading | Making a profit from the rising/falling prices of digital currencies by buying long or selling short based on the judgment. | Short sell/long buy with higher leverage to maximize your actual gains. Perpetual contracts do not have a mature or settlement date. |
You need to bear the high risk of double loss and forced liquidation. |
Perpetual Trading can be divided into the following two types:
|
Contract Type |
Characteristics |
| USDT-Margined Perpetual Contract e.g. BTCUSDT |
1. User-friendly for short sellers. |
| Coin-Margined Perpetual Contract e.g. BTCUSD |
1. User-friendly for long buyers |
Spot Trading
Spot trading just like delivery versus payment. For example, if you buy 1 BTC with 10,000 USDT, then you truly own BTC, and you can transfer it to your wallet or someone else.
The advantage of spot trading is that you have the ownership of the coins after purchase. No matter the price rises or falls, the number of coins in your hand will not change. However, the disadvantage is that you can just make profit when the price goes up. If the price falls, you can only sell coins to stop loss or continue to hold the coins.
Margin Trading
In margin trading, you can add multiple leverage to magnify actual funds with potentially amplified gains as well as losses. Suppose you spend 1 BTC to buy 5 BTC via multiple leverages, regardless of profit or loss, you have to pay the interest generated by borrowing BTC.
If BTC/USDT market is available for up to 5X leverage: you have 10,000 USDT in your margin account, and you will have MAX. 40,000 USDT available to borrow. If you predict the BTC price will rise from 10,000 USDT to 11,000 USDT, you can buy 5 BTC at the price of 10,000 USDT with a total of 50,000 USDT and sell them at 11,000 USDT, making a profit of 5 BTC x (11,000 - 10,000) = 5,000 USDT. If you use 10,000 USDT to buy 1 BTC by spot trading, you will just make a profit of 1,000 USDT. Using margin trading with 5X leverage multiplies the profit so that you could make with all the 5,000 USDT.
Of course, margin trading is also a double-edged sword, which magnifies risks while enlarging profits. In the same example above (buy BTC with 5X leverage), if BTC price keeps falling, then you have to bear 5 times losses. When the price drops to liquidation price, the position will be liquidated and the balance in your margin account will basically "return to 0" at this time.
Perpetual Contract
Users can make a profit by buying long or selling short based on your predictions about the the rising/falling prices of digital currencies in the future.
Perpetual contract does not have an expiry or settlement date. The Spot Market Price is anchored in the mechanics of a Funding component in a Perpetual Contract. Contracts allow you to buy long or sell short based on your predictions about the future upside and downside of the prices.
Although perpetual contract increases the flexibility of trading, the two-way choice undoubtedly sets higher technical requirements on traders, and frequent judgment errors may also cause two-way losses.
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