Binance Signals: Spot Vs. Leveraged Trading

Now that you have a complete list of all the top crypto Binance signals groups on telegram, it's also important to understand that there are two different types of trading that can supported on Binance -- spot and leverage trading.

Each has their own pros and cons, and an important question to ask a channel admin when looking to join a Binance trading signal group is which type they support. I'll give a quick description of what both are along with their respective advantages and disadvantages.

Spot Trading

Spot trading of Bitcoin is characterized by the purchase and immediate delivery of the asset itself. Most people when they say they want to buy Bitcoin will be referring to spot trading. It is the most common way of getting exposure to the asset class.

To illustrate, consider the following example: Alice opens a Coinbase account and wishes to use $1000 of her money to buy Bitcoin. With a current trading price of $10,000 for 1 BTC, Alice's $1000 gets her exactly 0.1 BTC in her wallet.

The price of Bitcoin increase to $11,000, making Alice's 0.1 BTC now worth $1100. Using her Coinbase account, she decides to sell her bitcoin yielding a nice return of $100.

This method of using fiat gateways such as Coinbase to purchase a cryptocurrency is spot trading. It is the most common type of trading that new investors will engage in and is less risky when compared to its counterpart of leveraged trading.

A key thing to note about spot trading is that you can only bet that the price of the cryptocurrency you've purchased will go up, this is also known as going long. Whereas leverage trading allows you to both bet the price of an asset will go up as well as down (going short).

Typically this may not be an issue for most investors, however, when Bitcoin enters periods of decline, or also known as bear markets, then only being able to take long positions makes it a difficult asset to trade.

Leveraged Trading

Leveraged trading is the opposite of spot trading in that instead of directly buying and selling Bitcoin, you are instead buying and selling a representation of Bitcoin in the form of a futures contract, to be more specific, a perpetual contract.

Perpetual contracts are a type of futures contract in that they are simply an agreement to buy or sell a cryptocurrency at a predetermined price at a specified time in the future. What make perpetual contracts special is that they do not have an expiry date and so can be held for an indefinite amount of time.

The key thing to note here is, when you're buying and selling contracts on Binance, you are not _directly _buying and selling bitcoin itself, but instead, a representation of it in the form of a contract.

There are a few advantages of being able to leverage trade, but the key ones to note are: being able to go short and being able to use leverage.

I'll further explain the differences between being able to go long and short as well as being able to use Leverage.