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Spot Trading VS Derivatives Trading
Beginner
2025-06-13 | 5m
The cryptocurrency market never sleeps—trading happens 24/7, enabling you to execute trades anytime, anywhere. To navigate this dynamic environment effectively, grasping core trading concepts is essential. We'll explore the foundational instruments powering this market: Spot and Derivatives, equipping you to begin your trading journey.
Guide
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What is Spot Trading?
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How to Spot Trade?
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What is Derivative Trading?
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What is the Futures?
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What is Perpetual Futures?
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What is an Option?
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How to trade contracts on CoinCatch？
What is Spot Trading?
A spot trade executes the immediate exchange of cryptocurrency between buyers and sellers. Upon transaction completion, both parties fulfill their obligations through instant asset delivery, enabling real-time trading for immediate market needs.
Examples:
Suppose the spot price of Bitcoin is $40,000 right now, and a buyer is buying one BTC in the spot market, which costs $40,000.
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📈 Suppose after one month, the price of Bitcoin rises to $60,000.
If the buyer sells BTC, according to [PnL Amount = (Selling Price - Buying Price) * Trade Volume], ($60,000 - $40,000) * 1 = $20,000, the buyer makes a profit of $20,000.
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📉 Suppose after one month, the price of Bitcoin falls to $20,000.
If the buyer sells the position, according to [PnL Amount = (Selling Price - Buying Price) * Trade Volume], ($20,000 - $40,000) * 1 = -$20,000, the buyer loses $20,000.
How to Spot Trade on CoinCatch？
The K-line service of the CoinCatch trading platform takes the spot market data from many mainstream exchanges, and synthesizes them to achieve an absolutely fair K-line. If you want to trade in the spot market on CoinCatch, please visit CoinCatch App [Buy/Sell - Spot] or visit https://CoinCatch.com/spot/BTCUSDT/ and click on "Spot" to trade.
After understanding spot trading, coming up is derivatives trading.
Derivatives long predate cryptocurrency as established instruments in traditional finance. These contracts derive value from diverse underlying assets – including equities, fixed income securities, commodities, fiat currencies, indices, and now digital assets. Unlike spot markets, derivatives enable leveraged positions that magnify profit potential. However, margin trading (using borrowed capital) proportionally amplifies risk exposure, potentially triggering position liquidation. Consequently, derivatives constitute high-risk financial products.
What is Derivative Trading?
Derivative is a financial contract between two or more parties with a value derived from a single or a group of crypto assets. Derivatives include futures contracts, options, warrants, forwards contracts, swaps, etc. There are different trading methods and uses for different derivative financial instruments.
Currently, the mainstream derivatives in the cryptocurrency market are futures contract, perpetual futures, and option contract.
What is Futures?
Futures, an early derivative product launched in the cryptocurrency market, is the most traded derivative today. There are two types of futures in the cryptocurrency market: Delivery Futures and Perpetual Futures, which are currently the most popular products in the cryptocurrency market.
Futures is traded with leverage on margin trading, allowing investors to take higher risks and profit from the price fluctuations of different crypto investments. Margin trading is performed by the investor with the trust provided by the broker or the exchange. Margin trading uses the principle of leveraged investment, allowing small capital as a margin to amplify your potential profits while trading, and also magnifying your potential risk of loss, enabling investors with limited capital to trade in the financial markets.
Unlike the spot market, you trade contracts in the futures market but do not own the crypto asset. In fact, futures is designed to avoid market volatility. When you trade the BTC/USDT contract, you are not buying or selling BTC but trading based on the predicted value of BTC. In other words, you are betting on the changes of BTC price parallel to the contract value, and do not own the asset.
In short, contract is a crypto asset derivative that allows users to choose to buy and long or sell and short to profit from the rise or fall of digital asset prices by judging the market.
In the cryptocurrency market, contracts can be divided into USDT-Margined Contract and Coin-Margined Standard Futures in terms of margin trading.
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USDT-Margined
The USDT is used to open positions and for final delivery. Whether you long or short a contract, you only need to deposit USDT in your contract account, and the final profit or loss will be settled in USDT.
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Coin-Margined
"Coin-margined" means that the corresponding cryptocurrency is used to open positions and for final delivery. For example, if you want long or short BTC, you need to deposit BTC in your contract account, and the final loss or profit will be settled in BTC.
In general, investors can choose the contract type according to the trend. When the short-term price is up, you can choose to open a long coin-margined contract; when the short-term price is down, you can choose to open a short USDT-margined contract.
What is Perpetual Futures?
Perpetual Futures is an innovative derivative in the cryptocurrency market similar to Delivery Futures. However, there is no delivery date for Perpetual Futures, and users can hold them forever. The exchanges will generally adopt funding rates to ensure long-term convergence between Perpetual Futures price and Spot price.
The funding rate is the settlement of funds between all longs and shorts in the Perpetual Futures market, which is settled every 8 hours. If the funding rate is positive, the longs pay funds to the shorts. If negative, the shorts pay for the longs.It can be considered as a fee for the trader to hold a contract position or a refund. This mechanism balances the demand for Perpetual Futures between buyers and sellers and keeps the price of Perpetual Futures largely in line with the price of the crypto asset. Perpetual Futures is currently the mainstream of cryptocurrency exchanges, with leverage of up to 125x, and is the most popular derivative in the market now.
From a trading perspective, it is divided into long positions and short positions.
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Long Position = Buy Up
When you think the value of the contract or the price of crypto will rise in the future, you can choose to long the contract and make a profit if the crypto price rises in the future.
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Short Position = Buy Down
When you think the value of the contract or the price of crypto will fall in the future, you can choose to shorten the contract and make a profit if the crypto price drops in the future.
Examples:
Suppose a buyer thinks that the price of Bitcoin will rise in the future and opens a long position with 5X leverage and chooses [Isolated Margin]. The following scenarios will happen:
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📈 When Bitcoin price rises by 10%, the buyer closes the position with a 50% profit.
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📉 When Bitcoin price drops by 10%, the buyer closes the position with a 50% loss; when Bitcoin price drops by 20%, the buyer suffers from forced liquidation with a 100% loss. If the buyer chooses [Isolated Margin], the buyer's margin will be zero.
Suppose a buyer thinks that the price of Bitcoin will drop in the future and opens a short position with 5X leverage and chooses [Isolated Margin]. The following scenarios will happen:
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📉 When Bitcoin price drops by 10%, the buyer closes the position with a 50%0> profit.
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📈 When Bitcoin price rises by 10%, the buyer closes the position with a 50% loss; when Bitcoin price rises by 20%, the buyer suffers from forced liquidation with a 100% loss. If the buyer chooses [Isolated Margin], the buyer's margin will be zero.
What is Option?
Option is a derivative product that gives a trader the right, but not the obligation, to buy or sell an asset at a specific price in the future. The main difference between Futures and Option is that the trader is not obligated to settle the Option.
Option Contract (or Option) is very similar to Futures as they also include an agreement between two parties to buy and sell cryptocurrencies at a predetermined price and date. However, the main difference between these two derivatives is that the holder does not necessarily have to buy or sell on the date of maturity. To enter into an option, the trader must pay a premium. If they do not want to exercise their rights at the end of the contract, they must still pay the premium.The innovation of Option in the cryptocurrency market enables traders to trade Options in a shorter specified time.
Options can be divided into two main types: Call Options and Put Options.
Call Option: Buy a specific amount of a particular cryptocurrency at a specific price for a certain period or at a certain point in the future.
Put Option: Sell a specific amount of a particular cryptocurrency at a specific price for a certain period or at a certain point in the future.
Examples:
Suppose the Bitcoin price is now $60,000, and the buyer purchases a call option with a strike price of $70,000 for a premium of $200.
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📈 Suppose the Bitcoin price rises to $80,000 at expiration.
If the buyer exercises the option, according to [PnL Amount = BTC Spot Price - Strike Price - Premium], [(80,000 - 70,000) - 200 = $9,800], the buyer makes a profit of $9,800.
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📉 Suppose the Bitcoin price falls to $50,000 at expiration.
If the buyer exercises the option, according to [PnL Amount = BTC Spot Price - Strike Price - Premium], [(50,000 - 70,000) - 200 = -$20,200], the buyer loses $20,200. However, one crucial feature of Options is that [when the buyer purchases an option, they are buying a right to execute, and the buyer can choose not to execute at expiration], so if the buyer decides not to execute at expiration, they will only lose a $200 premium.
How to trade futures on CoinCatch？
As the world's leading derivatives trading platform, CoinCatch provides the ultimate futures trading services, mainly Standard Futures and Perpetual Futures, suitable for ordinary and advanced investors in cryptocurrencies.
Standard Futures supports USDT-margined contracts and coin-margined contracts, which are easy to use and suitable for beginners or ordinary investors to get started quickly. Perpetual Futures currently supports USDT-margined contracts, allowing users to complete tighter limit strategies, position management, etc., and is suitable for advanced investors.
CoinCatch Team
Disclaimer:
Digital asset prices carry high market risk and price volatility. You should carefully consider your investment experience, financial situation, investment objectives, and risk tolerance. CoinCatch is not responsible for any losses that may occur. This article should not be considered financial advice.
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