Spot VS Future Trade

Spot vs Future

Futures Trading vs. Spot Trading

1. Spot trading: You buy an asset (ie BTC) and you own it. You can buy this in Binance/Crypto exchange and then withdraw this crypto to your own wallet. It's yours. That's it.

2. Futures trading: You buy or sell a contract on which the price is based on the underlying asset's value. You don't own the actual asset but you trade contracts. This allows for going long and short as well as using a leverage multiplier.

Long: You use your margin (the money in your account) to buy a number of contracts in the market against a price that is very close to the underlying assets' price. You then hope to sell it for a higher price and pocket the difference.

Short: You use your margin to borrow a number of contracts and sell them in the market to buy them back later at a different price (hopefully lower). the difference is your gain.

Leverage

$10 * 10x leverage = position size of $100

Interest

You pay interest on that loan (in this example, ~$90) but the loan exists only for the duration of your position so the interest is lower than your target profit. This amplifies the effect of your actions.

Commission.

When you open/close positions, you will pay commission. If you use a market order to open or close, you place your order against the order book or, in fact, fill someone else's order in the order book. You take their order. Then your order is what's known as a Taker order.

When you use a limit order instead, your order goes into the order book and waits there for someone else to fill your order. You're then making the market, ie increasing liquidity. This is known as a Maker orders.

This is important because a Taker order (Market Orders) costs twice the commission of a Maker order (Limit Order). So if you use Limit orders, that's money from Binance's pocket into your pocket. Saves you 50%.