Crypto Academy Week 3 Homework Post for @besticofinder | How to spot trade ? Everything a beginner need to know

Thank you @besticofinder for a well taught lesson, below is the homework task and my attempt.

(1) Explain Spot Trading and Margin Trading
(2) Discuss the advantages and disadvantages of Spot Trading and Margin Trading

Margin trading

Margin trading is used in both cryptocurrency market and commodity/stock market. it is a method that seek to harness the funds from a third party to maximise market opportunities thereby allowing them to leverage their position. All that is needed is a collateral for the position one want to choose. On the overall, margin trading helps to increase the traders result so that it is possible for the traders to realise greater profit during a single trade.

it is also a common practice that borrowed funds are provided by an investment broker but in cryptocurrency trading it is other traders that provides investment funds. Therefore, the person who earns and how much depend on market demand for mergin funds.

Margin trading is more risky when compared to regular trading but even in cryptocurrencies the risk gap is even more higher because of high level of volatility that is associated with cryptocurrency market. Although, there are risk management strategies and risk mitigation tools, margin traders still need to be very careful. Margin trading is not very advisable for a beginner. Being able to identify trends, determine entry and exit points and being able to analyse charts might reduce risk involved in margin trading but certainly it will not eliminate it totally.

Therefore, before embracing margin trading it is necessary for the traders to learn and have an understanding of technical analysis and to have extensive sport trading skills and experience.

Margin funding

Margin funding is designed for investors who do not have risk tolerance to participate in margin trading by themself therefore the leverage on other other users trading method such trading platforms are cryptocurrencies offer a particular feature called margin funding. Usually the the loan provider in this context agreeds to specific terms and conditions coupled with necessary interest rates. He releases his or her fund to a user on an exchange platform to make use of the funds.

In this kind of trading, the risk is very reduced. Although,the user might need to be keep his assets on an exchange wallet, therefore it is necessary to also understand the risk involved and properly understand how that particular feature work before dabbling into it.

It is a major way to help a beginner trade and also to create leverage on another person experience.

How does this margin trading work?

When one initiate a margin trading the trader will be expected to commit a certain amount or percentage of the total order value of the initial capital or investment which is known as the margin.

It is very similar to the concept of leverage, it can be used to open both short and long trading position. A short position predict that the day price of the assets will go down while a long position reflect that the price of the asset will go up.

Why the margin position is open it is the assets that are used as collateral for the borrowed funds. this is important for trade is it is important to understand as much as most brokerages have the right to force the sales of this asset in case the market moves against their position that is above or below a certain expected to threshold.

Advantages of margin trading

Firstly margin trading allows the investor to make larger profit because of greater relative value of trading positions. Also margin trading also helps in diversification, traders can quickly open several positions using small amount of investment capital

Disadvantage of margin trading

margin trading can result to large losses in the same way they can also result to large profit margin profit and allows the possibility of losses that even exceed the traders initial capital or investment therefore market today can be regarded as a high-risk trading method this is also dependent on the amount of leverage involve in the trade because shift in the market price can cause significant losses for traders that is why it is advisable that traders makes use of risk management strategies and also adopt best risk mitigation skills or tools to reduce losses.

Source

What Is Spot Trading?

Sport trading was derived from spot market because actually it takes place using the current market price. With this type of trading one is trading using available building and asking price because of the nature of this type of trading it is necessary to have they are available funds or assets to pay for your at the day agreed up on. It is very different form margin trading where one can borrow a third party fund. Example, if you are buying US$2,000 worth of Ethereum using spot trading, you will need US$2,000 balance in your account by the date of settlement. Otherwise, the exchange will not allow one to enter into the Ethereum position.

Advantage Of Spot Trading

It is very good for starters because it helps them to manage risk. it is not possible to lose more than what you have in your account because it encourage and it ensures that one only trade based on the except he or she has thereby eliminating losses due to over leveraging as it is obtainable in margin trading.

Disadvantage of Spot Trading

The major disadvantage of sport trading is that one is not able to take advantage of full market opportunities because mine is only limited to the phone in his account. This does not allow easy expansion and growth in business especially especially when the conviction to make profit is high one can only maximize it with his with the fund in the account. Example, with just US$500, there is only so much you can make with the US$500.

Now, the important question, which one is the best or should a traders select?

Importantly the choice of which one to choose whether margin trading or spot trading depend on the individual traders based on their understanding of what has been discussed above coupled with what our esteemed professor @besticofinder taught us in his lesson. Individual traders need to assess their risk tolerance and financial capacity before deciding on which one to choose. I will want to end up like this "many roads lead to the market just decide the most suitable one for you".

Thank you for reading.

Cc: @steemcurator01
Cc: @steemcurator02

@besticofinder
@cryptoacademy