Spot trading and Perptual Futures trading: A detailed comparison of features and mechanisms.

To aim for profits in the crypto market, selecting a trading method is crucial. In particular, "spot trading" and "Perptual Futures" are known to be popular methods among many investors. Each has its own unique advantages and risks, so it is necessary to choose according to your investment style.

This article provides a detailed explanation of the characteristics of both and offers a guide to help you find the trading method that suits you best.

The Basics of Spot Trading

Spot trading can be considered the simplest form of cryptoasset trading. Here, we will explain the basic mechanisms and characteristics of spot trading.

Definition of spot trading

Spot trading of cryptoassets refers to a trading method where cryptocurrencies like Bitcoin and Ethereum are directly purchased and instantly received in a wallet. The biggest feature is being able to buy cryptoassets at the current market price and immediately hold them as your own assets.

The appeal of spot trading lies in its simplicity. It is similar to stock investing and seeks to profit based on the fundamental principle of "buy low and sell high."

Example of spot trading

For example, let's say you bought 1,000 units of a cryptocurrency in January at 3 dollars each. The total purchase amount will be 3,000 dollars.

After that, if the market conditions improved and I was able to sell all my held coins at $5 each in March:

• Sale revenue: $5,000 ($5 × 1,000 units)
• Profit: $2,000 ($5,000 - $3,000)

You can earn a profit of $2,000.

Perptual Futures Trading Mechanism

Perptual Futures Trading is a derivative product that has different characteristics from traditional Futures Trading. Here, we will explain in detail from its basic mechanism to actual trading examples.

What is Perptual Futures Trading?

Perptual Futures trading is a type of derivative product that is gaining attention in the crypto market. Unlike standard Futures contracts, which have a set expiration date, Perptual Futures do not have a deadline.

Therefore, as long as the margin requirements are met, there is a feature that allows positions to be held indefinitely.

Key Features of Perptual Futures

Perptual Futures trading has a unique mechanism that is not present in spot trading. Let's take a look at the important points you should understand.

Design without expiration

The biggest feature of Perptual Futures contracts is that, quite literally, there is no expiration date. As long as traders can maintain sufficient margin to cover their losses, they can hold their positions as long as they like.

This mechanism allows for easier formulation of medium- to long-term strategies without being influenced by short-term price fluctuations.

Mechanism of Funding Rate

To prevent the price of Perptual Futures from significantly deviating from the spot market price, exchanges adopt a system called "funding rate." This refers to the fees that occur regularly between long and short positions.

If the funding rate is positive, long position holders pay fees to short position holders. Conversely, if it is negative, short position holders pay fees to long position holders.

This mechanism is expected to suppress the divergence between the contract price and the Spot price.

Utilizing Leverage

The ability to use high leverage is also a major attraction of Perptual Futures trading. It allows you to operate large positions with relatively small amounts of capital.

However, leverage is a double-edged sword that amplifies profits while also magnifying losses. For example, if you use 10x leverage, a 1% fluctuation in the underlying asset price will result in a 10% fluctuation in your position.

Mechanism of Margin Requirements

To engage in Perptual Futures trading, you need to deposit collateral called "margin." Remember that there are two types of margins:

• Required Margin: The minimum amount necessary to open a position
• Maintenance Margin: The minimum balance required to maintain a position

If the account balance falls below the maintenance margin, positions may be forcibly liquidated to prevent further losses. This is called a "margin call."

Comparison of Trading Fees

To succeed in cryptoasset trading, understanding the fee structure is essential. The fee mechanisms differ significantly between spot trading and Futures Trading.

Spot trading fee structure

Spot trading is generally characterized by lower fees compared to Futures Trading. Many exchanges feature two types of fees: "maker fees" and "taker fees."

Specific Example of Fee Calculation

If the exchange sets a fee of 0.2%:

At Purchase (Maker Fee):

• Trading amount: 5,000 dollars
• Fees: $5,000 × 0.2% = $10

Selling (Taker Fee):

• Transaction Amount: 5,000 dollars
• Fee: $5,000 × 0.2% = $10

Total Fee: 20 dollars

In this case, a total fee of 20 dollars will be incurred for the round-trip transaction.

Perptual Futuresの手数料構造

In Perptual Futures trading, there is a more complex fee structure. In addition to the trading fees, there is an additional charge for leverage utilization called the "funding rate."

Example of a complex fee structure

If you start a Perptual Futures position in cryptoassets with 20x leverage and contribute $500 in margin:

• Position Size: $10,000 (20 times the margin)
• Funding Rate: 0.01% every 8 hours
• Funding fee for holding for 1 day: $10,000 × 0.01% × 3 times = $3

Additionally, just like in spot trading, maker and taker trading fees must be paid separately.

Criteria for Choosing Spot Trading and Futures Trading

Both have different risk profiles, so it is important to choose according to your investment style and experience level.

Spot trading is suitable for investors

Spot trading allows for complete ownership of cryptoassets and is generally considered to have lower risk since leverage is not used. It is simple and easy to understand, providing a sense of security as you can actually hold the assets. Additionally, there is no risk of forced liquidation, and the fees are relatively low, which is also an attractive feature.

On the other hand, aiming for significant profits requires a large amount of capital. Additionally, since it is generally not possible to make profits during a downturn, the ability to discern the market direction may become crucial.

Futures Tradingが適している投資家

In Futures Trading, you can leverage the power of leverage to aim for greater returns with a small amount of capital. Because you can hold large positions with a small amount of capital, it is efficient in terms of capital, and the ability to seek profits in both rising and falling markets is a major attraction.

However, you must be prepared for the fact that the risks will also increase proportionately. There is a possibility of losses expanding, and the risk of forced liquidation is always present. Additionally, fees tend to be higher, and the complexity of the system may make it difficult for beginners.

If the prediction is incorrect, not only may the margin disappear, but due to the nature of leverage, there is also the possibility of incurring even greater losses.

Strategies to Reduce Trading Fees

Transaction fees may seem like a small amount at first glance, but over the long term, the cumulative amount can become surprisingly large. By reducing fees, you will be able to keep more profits in your hands.

Gate offers a competitive fee structure in the crypto market. In spot trading, the maker and taker fees are set below the industry average.

In Futures Trading, there are similarly attractive settings, achieving a fee rate that is below the industry standard. These conditions allow traders to significantly reduce their trading costs.

Furthermore, by holding a certain amount of GT (Gate's platform token), you can receive a fee discount on spot trading. This allows you to significantly reduce your transaction costs.

By utilizing GT in Futures Trading, you can enjoy fee discounts and further reduce your trading fees.

These features make Gate an attractive option for traders who want to minimize the impact of trading fees and maximize their profits.

How about joining the Gate exchange and experiencing its competitive fee structure?

Summary

Spot trading and Perptual Futures have their own unique advantages and risks. Spot trading is easy to understand for beginners and has relatively low risk, while Futures Trading offers the potential for large profits with a small amount of capital, but also comes with a higher risk of loss.

It is important to choose the optimal trading method based on your investment experience, risk tolerance, and capital amount. Regardless of which method you choose, reducing fees can enhance long-term profitability.

By utilizing exchanges that offer competitive fee structures like Gate, you can achieve more efficient cryptoasset trading.