There are a few different types of trading that exchange users can take advantage when it comes to crypto trading, but crypto spot trading is the simplest and most obvious option for those who are new to the market.
In short, the spot market for crypto is the collection of exchanges on which traders are able to buy and sell crypto assets with immediate settlement. There are three key components of crypto spot trading: the buyer, the seller, and the order book.
The idea is a trader will be able to gain a profit from these sorts of trades over the long term by buying when a crypto asset’s price is low and selling after there has been an increase in the exchange rate with other assets.
What is a Crypto Order Book?
While the buyers and sellers in the crypto spot market are self explanatory, the order book can be a bit more difficult to visualize 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 on the book: buy orders and sell orders. The buy orders will be displayed in green, while the sell orders will be shown in red. Exchange users have the option of either accepting an order that is already in the order book or creating a new order of their own at a different price point.
It should be noted that over-the-counter (OTC) trading is also a type of spot trading, but it works a bit differently from traditional trading on centralized exchanges. For example, there is less transparency due to the lack of public disclosures on executed trades.
What Are the Best Exchanges for Crypto Spot Trading?
In the early days of cryptocurrency, all exchanges were based around spot trading. These days, most of the trading takes place 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 is going to be the best option for crypto spot trading in most countries around 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 for your preferred trading pairs on each platform. It should also be noted that those who wish to use Binance in the United States will need to opt for the specialized Binance US offering.
- Exceptionally secure exchange with proof of reserves
- Supports many different funding options
- Accepts users from across the globe including USA and Canada
- Very high trading volume
- Easy sign-up process
- Lowest transaction fees of any major exchange
- 175+ different digital assets available
- Free deposits
Can You Do Crypto Spot Trading on Decentralized Exchanges?
One of the more recent developments in the world of crypto spot trading has been the developed of decentralized exchanges. These types of exchanges allow users to trade crypto assets with each other without having to put any trust in a third-party custodian of funds. In traditional, 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 instances where non-custodial trading is possible via centralized platforms.
The real difference when it comes to decentralized exchanges is that the more advanced platforms do not have their own order book. For example, Uniswap, which is the most well-known decentralized exchange on the market, works on a system of reserves deposited into smart contracts by liquidity providers instead of matching buy and sell orders placed over time.
Despite the lack of an order book, decentralized exchanges powered by liquidity providers, such as Uniswap, can still be defined as crypto spot trading because the crypto assets that are purchased from the exchange are instantly delivered 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 for an order book used in a decentralized exchange to not be a point of centralization that can be targeted by regulators.
Differences Between Spot Trading and Futures Trading in Crypto?
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 crypto market, at least for those who are more interested in speculating on short-term price swings rather than holding a particular cryptocurrency over the long term.
BitMEX is a useful example exchange to use when talking about trading derivatives because this platform does not offer spot trading at all. Users are able to deposit and withdraw bitcoin 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 trading bitcoin for another crypto asset, users can bet on future price movements of the crypto asset by placing a bet with their bitcoin holdings. The trade is collateralized with bitcoin rather than the user actually receiving any of the alternative crypto asset 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’s own price swings through the use of leveraged trading.
It should be noted that futures trading is known to be riskier than simple crypto spot trading, especially as the amount of leveraged used increases, as traders can get margin called and lose all of their collateral. Much like crypto spot trading, there are also various platforms that enable futures trading in a decentralized manner.
