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What is Spot Trading

What is Spot Trading

2023/05/24 14:57:30

1. What is Spot Trading?

Spot trading basically involves the exchange of one digital currency for another, utilizing one of the currencies as the unit of denomination to acquire other currencies. The rules of spot trading require the completion of aggregated transactions in accordance with price priority and time priority, enabling the direct exchange of digital assets.

Many of the digital assets we are familiar with, such as BTC (Bitcoin) and ETH (Ether), which are priced in RMB (CNY). Consequently, pricing Bitcoin in RMB creates a BTC/CNY trading pair (a trading pair is established when one asset is priced in another asset). The price of this trading pair signifies the amount of CNY required to purchase 1 unit of BTC or the amount of CNY received when selling 1 unit of BTC.

So, what if Ethereum is priced in Bitcoin? In other words, how much is 1 Ether worth in Bitcoin? A spot trading transaction occurs when one digital asset is exchanged for another, such as pricing ETH with BTC, resulting in an ETH/BTC trading pair. The price of this pair represents the amount of BTC needed to buy 1 unit of ETH or the amount of BTC obtained when selling 1 unit of ETH. For example, when 1 ETH = 0.1 BTC, this means 1 Ether is worth 0.1 Bitcoin.

Currently, FameEX spot trading only supports the ETH-based trading pairs and the USDT-based trading pairs. FameEX will continue to add additional trading zones based on market conditions to enhance the trading experience for most of our users.

2. What Is the Difference Between Spot Trading and Traditional Fiat Trading?

In traditional fiat trading, digital assets are exchanged with fiat currencies, such as the RMB (CNY). For instance, when buying Bitcoin with RMB, if the value of Bitcoin increases, you can exchange it for more RMB, and vice versa. For example, if 1 BTC equals 30,000 RMB, you could buy 1 BTC and sell it when the value rises to 40,000 RMB, converting 1 BTC into 40,000 RMB.

On the other hand, in FameEX spot trading, BTC takes the place of fiat currency. For example, when 1 ETH is equivalent to 0.1 BTC, you can buy 1 ETH with 0.1 BTC and sell it when the value of ETH increases to 0.2 BTC, exchanging 1 ETH for 0.2 BTC.

3. Advantages of Spot Trading

In traditional digital asset trading, these assets are typically priced in fiat currency, such as RMB. For instance, if you own Bitcoin and wish to exchange it for ETH, you would first need to sell your Bitcoin, incurring a trading fee, and then purchase ETH, incurring another trading fee. This process results in paying twice the fees. However, with spot trading, you can directly exchange Bitcoin for ETH, making the process more convenient and cost-effective.

  1. 1) Lower costs when exchanging between cryptocurrencies

  2. 2) Offers arbitrage opportunities within the platform

  3. 3) Enhanced anonymity

  4. 4) Easier conversion and transfer between different cryptocurrencies

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