There are several types of trading that exchange users can take advantage of when it comes to cryptocurrency trading, but spot cryptocurrency trading is the easiest and most obvious option for those who are new to the market.
In short, the spot market for cryptocurrencies is the collection of trades on which traders are able to buy and sell crypto assets with instant settlement. There are three key components of crypto spot trading: the buyer, the seller, and the order book.
The idea is that a trader will be able to make a profit from these types of long-term trades by buying when the price of a crypto asset is low and selling after there has been an increase in the exchange rate with other assets.
Table of Contents:
What is a Crypto Order Book?
While buyers and sellers in the crypto spot marketplace are self-explanatory, the order book can be a bit harder to view without visiting a real crypto exchange. The order book is effectively the current buy and sell orders that are available for traders to take on an exchange.
There are two different types of orders that can be placed in the book: buy orders and sell orders. Buy orders will be displayed in green, while sales orders will be displayed in red. Exchange users have the option to accept an order that is already in the order book or create a new order at a different price.
It should be noted that over-the-counter (OTC) trading is also a type of spot trading, but it works a little differently from traditional trading on centralized exchanges. For example, there is less transparency due to the lack of public information about the operations performed.
What are the best exchanges for spot cryptocurrency trading?
In the early days of cryptocurrency, all exchanges were based on spot trading. These days, most trading happens on various derivatives trading platforms. That said, most of these derivatives-based exchanges also offer spot trading to their users.
Three of the best crypto exchanges that offer spot trading to their users right now are Coinbase Pro, Binance, and Kraken. One of these three exchanges will be the best option for crypto spot trading in most countries of the world; However, the specific option that is best for you will depend on a variety of factors such as the availability of certain crypto assets for trading and the level of liquidity available to your favorite trading pairs on each platform. It should also be noted that those who wish to use Binance in the US will have to opt for the specialized Binance US offer.
Coinbase Pro
- Superior option for experienced cryptocurrency traders
- Dramatically lower trading fees
- More powerful platform for trading
- Same diversified selection of coins as regular Coinbase
Kraken
- Reliable exchange
- Supports many different financing options
- Accepts users from all over the world
- High trading volume
Binance
- Easy registration process
- The lowest transaction fees of any major exchange
- 175+ different digital resources available
- Free deposits
Can you spot cryptocurrency trading on decentralized exchanges?
One of the
most recent developments in the world of crypto spot trading has been the development of decentralized exchanges. These types of exchanges allow users to exchange crypto assets with each other without having to place any trust in a third-party fund custodian. In traditional and centralized exchanges, users usually have to hand over custody of their crypto funds into the hands of a centralized third party; However, there are some cases where non-custodial trading is possible via centralized platforms.
The real difference when it comes to decentralized exchanges is that the most advanced platforms don’t have their own order book. For example, Uniswap, which is the best-known decentralized exchange on the market, runs on a system of reserves deposited in smart contracts by liquidity providers instead of matching buy and sell orders made over time.
Despite the lack of an order book, decentralized exchanges powered by liquidity providers, such as Uniswap, can still be referred to as crypto spot trading because the crypto assets purchased by the exchange are immediately handed over to the buyer. That said, it should be noted that there are still some types of decentralized exchanges, such as Bisq, that use more traditional order books. However, as the case against EtherDelta showed, it is important that an order book used in a decentralized exchange is not a centralization point that can be targeted by regulators.
Differences between spot trading and cryptocurrency futures trading?
The main alternative to crypto spot trading is known as futures trading. In the futures market, a trader is betting on a derivative of their crypto asset of choice rather than taking ownership of the asset directly. Over time, derivatives trading has become much more popular than traditional spot trading in the cryptocurrency market, at least for those who are more interested in speculating on short-term price swings rather than holding a particular cryptocurrency in the long term.
BitMEX is a useful sample exchange to use when talking about derivatives trading because this platform doesn’t offer spot trading at all. Users are able to deposit and withdraw bitcoins to and from the platform, and this is the only asset that can be used for trading. That said, there are a wide variety of different crypto asset derivatives that can be traded on the platform.
Instead of exchanging bitcoin for another crypto asset, users can bet on the crypto asset’s future price movements by placing a bet with their bitcoin holdings. The trade is collateralized with bitcoin rather than the user actually receiving one of the alternative crypto assets in their exchange account. In addition to betting on the price movements of non-bitcoin assets, users are also able to gain greater exposure to bitcoin price swings through the use of leveraged trading.
It should be noted that futures trading is known to be riskier than just crypto spot trading, especially when it increases the amount of leverage used with leverage, as traders can get a called margin and lose all their collateral. Just like crypto spot trading, there are also various platforms that allow futures trading in a decentralized manner.
