How Spot Trading Works
In spot trading, you buy or sell the crypto assets at market price. The trades are executed immediately through order book system which matches the buy and sell orders. Specifically in spot trading, you fully own the asset and can also hold it for long time. In derivatives trading, you only hold a contract based on underlying asset, not the asset itself. The speed of trade execution depends on liquidity of the specific asset – the higher the liquidity, more easily trade would be executed. Crypto markets with higher liquidity reduce price slippage, which occurs due to large orders.
You can place a buy or sell order using various order types depending on your trading requirements. Market order type is commonly used to buy or sell crypto asset at current market price, ensuring immediate execution. For more specific conditions, you can use advanced order types like stop-limit orders. These allow you to set both a trigger price and a limit price. When the trigger price is reached, the order becomes active, aiming to execute at the limit price or better. This type of order can help manage risk, providing more control over trade execution in volatile markets.
Creating an Account
When you are just getting started with crypto trading, make sure you select a reliable and secure crypto exchange. Most of the exchanges have implemented the KYC process in the account registration process. You can sign up by entering your details including email, password, phone no., etc. In KYC process or identity verification, you need to provide images of your government-issued ID card. Once completed, you can deposit crypto in your exchange account. You can transfer assets from another crypto wallet or simply purchase crypto by depositing fiat currency in your account.
Placing First Crypto Order
Here’s the step-by-step process. Move to the spot market or trading platform of crypto exchange you are using. Now, you can select from several trading pairs such as BTC/USDT, or ETH/BTC depending on what type of crypto you already have. If you have USDT and want to buy BTC with it, take a moment to analyse the current BTC market conditions using charts and other trading data. You can set various technical indicators like Moving Averages (MA) and Relative Strength Index (RSI) in the candlestick chart. RSI is an effective indicator used to identify oversold or overbought conditions based on changes in price movements.
Then, select market order type and enter the amount of BTC you want to purchase. Now you can click Buy to execute the order immediately at the current market price. Review the order details and confirm transaction. Afterwards, you can check new account balance which includes some amount of BTC.
Monitoring Your Strategy
If you plan to sell BTC later when its price surges, it’s crucial to remain in touch with market conditions of Bitcoin. Technical analysis, fundamental analysis and information about market sentiments can aid you in the process to identify perfect time to sell BTC. The specific signals of future price movements that multiple indicators can give are very helpful. For example, when RSI value is above 70, and when short-term Moving Average cross below long-term Moving Average, it is a good time to sell your asset. The fundamental analysis involves identifying specific events that can impact crypto’s price like halving event, and regulatory crackdowns.
Alternatively, if you didn’t purchase BTC but want to buy it at its lowest price point, RSI indicator and MA can be helpful. RSI value of below 30 is an indicator of oversold condition and a good time to purchase a cryptocurrency.
Alternative Ways of Spot Trading
Many traders have shifted focus from manual trading to automated trading. Automated trading involves the use of trading bots that utilize custom parameters to execute trades automatically. Most common trading bot is grid bot which allows users to trade in specific price range, which is a strategy used in day trading. Most of the trade bots like DCA bot, and Arbitrage bots have built-in strategies allowing traders take benefit of these to make better profits. Although bot trading is a good option if you want to trade in spot market, but it requires sound knowledge of how these works and specific risks associated with these bots. These bots perform trade based on parameters determined by user, and in some cases cannot prevent losses when price downfalls occur. In a situation of continual market decline, grid bots or DCA bots may keep buying assets according to predefined parameters set by the user, which can lead to further losses. That’s why, monitoring the performance of trades executed by bots is essential part of automated trading. In cases of declining markets, it may be necessary to disable the bots. Usually, these bots are more effective when used with assets that have long-term upward trend.