Introduction to trading
The buying of assets, as well as the selling of these assets between buyers and sellers, can be referred to as trading. These assets can be good and services where buyers will pay sellers for what they are getting. In the financial market, trading refers to the buying and selling of commodities, securities, and currency (foreign and cryptocurrency)
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Introduction to Spot Trading
Spot trading is the direct/instant trade of assets, commodities, financial instruments (stocks, bonds, foreign currencies, cryptocurrencies, etc.), which are delivered at a specified trade spot market. A spot trading rate is the rate at which each transaction performed is based thereby referring to as over-the-counter trade.
Unlike derivative or margin trade, Spot trade do not require a fixed date to trade, it just needs to meet the price set and trade takes place either a buy or a sell.
Margin Trade
Margin trading is a trade in which assets are been traded using borrowed funds that are provided by a third person or a third party. Margin trading serves as a means to expand the capital needed to trade making it a very high risk, high profit and loss. With margin trade, the use of leverage makes it very juicy for traders who want to create a movement in the market but do not have the volume.
How does margin trading works
A trader is mostly required to drop a total percentage of his total order value when a margin trade is initiated. Margin trading also works for both short positions and long positions and a short position entails that the price of the assets may go down while a long position assumes that the assets will go down.
Accounts that are registered for margin trading can be used to create leverage trading and the leverage deals with the aspect ratio of the marginal borrowed funds. A trader’s asset can act as collateral to the borrowed funds most especially when the margin rate is open.
Differences between spot trading and margin trading
Spot trading is a day to day normal online buying and selling where one currency is being spent to get another
While margin trading doesn’t really work as a normal buying and selling deals with borrowing funds or money to trade and increase one's profit.
In margin trading, a trader is asked to drop an actual percentage of his total value when margin trade is initiated but a buyer only compensates the seller's will to sell in spot trading.
Spot trading involves mostly buying and selling of foreign currency while margin trading deals mostly with borrowing funds to trade with.
Conclusion
Trading is for risk takers and when it comes to marging or derivative trading, the risk is higher compared to spot trading. It is advisable that you only trade with money that you can lose at anytime.