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What is Spot Trading

What is Spot Trading

2022/01/25 09:24:55

Solve your problems and learn more about related topics through our tutorial video: What is Spot Trading?

Read the whole article below for more details.


1. What is Spot Trading?


Spot trading is the simplest way to invest and trade. In crypto trading, your first trading experience is most likely to be a spot transaction such as purchasing bitcoins(BTC) at the market price and holding that for a long time.


A trading pair involves two currencies. Take the BTC/USDT trading pair as an example. The cost of Bitcoin in USDT is 50,000 USDT. In this case, if a user wants to buy 1 bitcoin (BTC), he/she will spend 50,000 USDT, and if a user sells 1 bitcoin (BTC), he/she can receive 50,000 USDT. In crypto trading, users can buy a fraction of a bitcoin such as 0.001 bitcoin (BTC) instead of buying a whole bitcoin or any other cryptocurrency. 


On FAMEEX, we have 3 sections of crypto spot trading: Bitcoin (BTC) zone, Ethereum (ETH) zone, and USDT zone. Users can buy any token they want with ETH-based and USDT-based trading pairs.


2. Spot Trading vs Fiat Trading


Some spot trading pairs are fiat-based which means you have to use fiat to buy the digital assets (cryptos). For example, in BTC/AUD, the Australian Dollar will be used to buy Bitcoin (BTC). When selling Bitcoin (BTC), you will receive AUD. 

On FAMEEX, when a user chooses the ETH/BTC trading pair, AUD will be replaced by Bitcoin (BTC). For example, 1ETH=0.01795BTC, a user uses 0.01795 Bitcoin (BTC) to buy 1 Ethereum (ETH). When the price of Ethereum (ETH) rises to 0.2 Bitcoin (BTC), then a user will get 0.2BTC by selling the Ethereum (ETH) he/she holds.


3. The Advantages of Spot Trading


Without crypto-to-crypto spot trading pair, the transaction will be more complicated. If  Bitcoin (BTC)  holders want to get Ethereum (ETH), they have to sell their Bitcoin (BTC) into fiat currency, and then exchange fiat currency into Ethereum (ETH). It will have doubled the transaction fees as two transactions are involved in the process. 


However, in crypto-to-crypto spot trading, a user can exchange Bitcoin (BTC) to Ethereum (ETH) directly and at a low cost.


In short, the advantages of spot trading include:

  1. a) Lower cost of digital assets exchange

  2. b) An arbitrage opportunity

  3. c) A high degree of anonymity

  4. d) Convenient and user-friendly experience in switching and transferring digital assets 


4. How to list the price of crypto-to-crypto spot trading?

In a free market, traditional financial markets or cryptocurrency markets, the price is always decided by demand and supply. The price of Bitcoin (BTC) goes up because the buy-side (demand) is larger than the sell-side (supply). Nevertheless, if the sell-side (supply) exceeds the buy-side (demand), the price will be driven down. For example, in LTC/USDT (Litecoin/Tether) trading pair, if a large amount of Tether (USDT) holders are eager to sell their USDT into Litecoin (LTC), which means the demand for Litecoin (LTC) increases, the price of Litecoin to Tether will therefore go up. In other words, more Tether (USDT) needs to be spent to get 1 Litecoin (LTC). 

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