Cryptocurrencies continue to gain popularity worldwide as new tokens are created daily, and popular coins continue to grow in market cap year over year. Many new investors will start in crypto by spot trading with the most familiar coins, perhaps ETH or Bitcoin. Still, advanced traders will utilize more complex crypto trading strategies to maximize their returns. If you’re interested in the various investment strategies, here’s what you need to know about trading on the spot market vs. trading crypto options.
The Crypto Spot Market
The spot market is where assets are bought and sold for immediate delivery, meaning you receive the asset right away. For example, if you want to buy Ethereum right now, you’d go straight to the spot market. All cryptocurrencies trade on this market in some form; it’s an excellent place to start when learning about trading cryptocurrencies because there’s less risk involved than with other forms of cryptocurrency trading. To be successful on the spot market, you need a reliable crypto exchange behind you. Select an exchange that offers a wide array of cryptocurrencies to invest in so you can diversify your portfolio and not keep all your eggs in one basket.
FTX is an excellent exchange option that offers competitively low trading fees and access to over 300 cryptocurrencies to choose from. FTX is also backed by a significant liquidity provider within the crypto space, meaning you will always be able to instantly cash out your Bitcoin or ETH USD trade when the market is in your favor. You can join FTX to learn more about spot trading and keep a close eye on the market.
The Crypto Options Market
The crypto options market is very similar in structure to the futures market. It’s a derivative asset class based on underlying spot prices, requiring you to make some complex pricing and risk management decisions. In this section, we’ll outline the basics of how options work so you can get comfortable before actually trading them.
First off: what are crypto options? Options are rights that allow their holder to buy or sell an underlying asset at a specified price on or before the expiration day of the option contract. The buyer of an option pays some amount of money up front and a premium based on its strike price (the agreed-upon price) to purchase this right from its seller. Suppose you hold an option contract that expires worthless (i.e., no one exercises it). In that case, all parties involved will lose their initial investments plus any additional costs incurred throughout its lifetime – including commissions paid for entering and exiting positions each day. But, if your position ends up being profitable by the expiration date, those profits will be yours alone! Options are a great way to reduce risks on larger gambles, but they can still pay off tremendously if the market moves in your favor.
Crypto Futures – A Cross Between the Spot and Options Markets
Futures are a type of derivative contract that is traded on an exchange. Futures contracts are standardized agreements to buy or sell an asset at a predetermined price and time in the future. The terms and expiration dates of futures contracts are standardized by exchanges, whereas options have variable parameters. Futures contracts can be used to hedge against market risks, such as price changes in commodities or equities, or they can be used for speculation purposes.
Choosing between these three markets is key to maximizing profits from digital assets
Deciding between the three markets is key to maximizing profits from digital assets. Here are the main differences between them:
Market liquidity: The crypto option market is by far the most liquid, with an average daily volume in the billions of dollars versus millions daily in the spot market.
Market volatility: The volatility of all three markets can change drastically based on news, rumors, and speculation about projects related to each currency. The crypto options market tends to be less volatile than spot trading because there are fewer buyers and sellers at any given time; however, it still has significant swings within short periods (especially if you trade leveraged options).
Market depth: A deep market means that you will have plenty of opportunities to buy or sell your asset without affecting its price too much since there are plenty of other buyers or sellers out there along with you. That said, there’s more depth in spot trading than with futures contracts because people don’t want their positions rotting away while they wait for expiration day. They want them closed out as soon as possible!
If you’re a crypto trader looking for new ways to maximize your profits, you should consider trading options on digital assets. You can visit FTX to learn more about the difference between spot markets and options trading to choose which strategy is best for your investment goals. Begin familiarizing yourself with complex trading strategies to increase your ROI and find new opportunities.