While you begin your crypto trading journey with Binance, it is necessary to know which markets to engage in. Should you go with Binance Futures or stick with spot trading? How do you make your choice, and why should you go for either one of them? What are the distinguishing qualities you should consider? When you place both on a scale, which outweighs the other? Let’s find out:
Binance Futures are derivative assets that give room for prices to be settled at a later time. As opposed to an instant settlement, two parties (counterparties) agree to buy or sell an asset’s contract representation at an agreed price at a future date. This future date is known tagged the expiry date of the contract.
The futures market is classed into two major categories:
- Traditional Futures Market
- Perpetual Futures Market
While traditional Futures Contracts are settled upon expiration, Perpetual Futures Contracts do not have an expiration date. As such, traders can hold on to their positions even after what would have been the expiration date.
The CME group still provides Traditional Futures. However, newer exchange groups are providing the flexibility of Perpetual Futures Contracts.
Trading Binance Futures
When opening a new trade on Binance Futures, you will engage margin checks as collateral against losses. They are of two types:
- Initial Margin
- Maintenance Margin
Your collateral needs to be greater than your initial margin before you can open a position. Also, note that your maintenance margin is that margin your collateral and potential losses should not fall below. Your position will be automatically liquidated in the event of your maintenance margin being higher than your collateral and potential losses. You could also incur extra penalties and additional fees should this happen.
Spot trading allows prices to be exchanged or settled instantly. As opposed to long-term investing, you can trade the spot market for immediate results. Literally, coins are traded and exchanged on the spot.
Advantages of Binance Spot Trading
- Low Capital Startup: The leveraging feature on Binance spots allows just about any trader to begin his trading journey with very little capital.
- Instant Feedback: You can decide to trade BNB coins for BTC and know if you have made profits or losses within a few minutes. Futures, on the other hand, can only be traded on the expiry date of the agreed Futures contract.
Prices in the Spot Market are different from futures market prices. This is due to carrying costs and returns. Though Binance works to close the gap between both by funding rates, the differences are huge and evident in the short term.
Which is better? Binance Futures or Spot?
As with other aspects of trading, no one can decide which is the better option between the pair without the expression of certain biases. It is, after all, only a matter of preference. A trader might be most suited to trade on the spot a few times a day, while another might not be able to afford that luxury. So, why not consider your options on a personal level? The important thing is understanding what market suits your personality and your lifestyle.