Spot Trading vs. Futures Trading — Key Differences Explained
In this article, we’ll break down spot trading and futures trading in a beginner-friendly way, helping you understand their main differences and choose which suits your trading goals best.
Spot Trading
Spot trading works much like buying and selling goods in the real world. You trade the actual asset (e.g., Bitcoin or Ethereum) at the current market price, and ownership is transferred immediately.
Key Features:
- Immediate Exchange: The asset is delivered instantly upon purchase.
- Full Ownership: You fully own the asset and can store it in your wallet.
- No Leverage: Trades are made using your own funds only, without borrowing or margin.
Futures Trading
Futures are derivative contracts whose value comes from an underlying asset. When you trade futures, you don’t own the actual cryptocurrency — instead, you agree to buy or sell it at a predetermined price on a future date.
In crypto futures markets, you are not required to physically settle the asset. Instead, profits or losses are realized based on the price difference between the entry and exit points.
Key Features:
- Leverage: Allows you to control larger positions with less capital. However, higher leverage increases the risk of liquidation.
- Futures contracts have specific expiration dates (daily, weekly, or quarterly).
- Perpetual contracts (including inverse, USDT, and USDC perpetuals) have no expiration date and can be held indefinitely, as long as margin requirements are maintained.
- Speculation & Hedging: Futures can be used for speculative trading (seeking profit) or for hedging existing positions (reducing risk).
Comparison of Spot Trading, Margin Trading, and Futures Trading
| Category | Spot Trading | Futures Trading (Perpetual Contracts) |
| Market | Spot Market | Perpetual Market |
| Expiration Date | Not Applicable | No expiration date, allowing you to hold positions indefinitely. |
| Trading Fees | Spot trading fees | 1. Perpetual contract trading fees 2. Funding fees Unified Trading Accounts (UTA) may incur interest and repayment fees. |
| Leverage | Not supported. To acquire an asset worth 100 USDT, you must have 100 USDT in your account. | Leverage allows you to open a position with less capital. For example, if a position requires 100 USDT as an initial margin, you would need 100 USDT without leverage. However, with 10x leverage, you only need 10 USDT to open a position worth 100 USDT. |
| Maximum Leverage | Not Applicable | Varies by trading pair, ranging from 25x to 125x. |
| Borrowing | Not supported. | Standard accounts do not support borrowing. For UTA, users can borrow funds for futures trading. |
| Collateral | Not Applicable | Initial Margin (IM) acts as collateral for the position. IM = Position Value / Leverage |
| Profit Potential | You benefit from capital appreciation as the value of your cryptocurrency increases over time. | Enables you to profit from short-term bidirectional price movements. In addition to the traditional buy low, sell high strategy, you can also short-sell to profit from downtrends. Futures contracts also serve as a hedging tool, protecting against unforeseen risks and extreme price volatility, making them ideal for long-term investors. |
| Liquidation Risk | No | Yes |
| Liquidation Criteria | Not Applicable | For Standard Accounts: Liquidation occurs when the mark price reaches the liquidation price. For UTA: Liquidation occurs when the Maintenance Margin Ratio (MMR%) reaches 100%. |
| What Happens During Liquidation? | Not Applicable | Depending on your margin mode, you may lose part of your invested margin (partial liquidation) or the entire margin to maintain the position. |