Today I will be completing the homework task given by professor @besticofinder. If you still haven't gone through this week's lesson here is the link Lesson 3: How to spot trade? Everything a beginner needs to know You can read and understand the lesson and complete the homework task.

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This week's task...

You need to do your own research and create an article discussing the following topics,

(1) Explain Spot Trading and Margin Trading
(2) Discuss the advantages and disadvantages of Spot Trading and Margin Trading

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(1) Explain Spot Trading and Margin Trading

What is Spot trading?
Spot trading is a transaction between two parties (Buyer & Seller) at a spot rate. Spot trading is the simplest form of foreign currency transaction at the current market value. As an example – you have been holding Steem until the value increases and buy other altcoins at the current rate forecasting that it will rise in value.

This spot trading takes place in spot markets, where crypto buyers and sellers meet to make transactions. You need to have cryptocurrency in hand to start spot trading.

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What is Margin Trading?
Margin trading doesn’t require cryptocurrency in hand, you can start trading by borrowing funds from a third person. This method of trading comes with a huge risk while it allows the traders to leverage their position by getting access to a larger amount of capital. But it involves relatively high interest for the capital borrowed from the crypto exchange, the traders can earn a profit only if the market moves in favor of the traders. If not the traders have to bear a huge loss.

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The difference between these two trading methods are:
Spot trading is the traditional method of trading, Crypto traders buy and sell their own assets on an exchange at the current price. Holding them until the value increases in the long term or short term so that traders will able to earn a profit.

Margin trading happens when traders borrow assets from an exchange for increased buying and selling power having the potential to earn higher profits.

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(2) Discuss the advantages and disadvantages of Spot Trading and Margin Trading

Advantages of Spot trading

• Spot trading is easy to carry out, Traders can buy or sell their assets for the spot price or hold until the value increases.
• Spot prices are transparent to the traders and there are no additional fees charged.
• There is no obligation for minimum investment as in margin trading, traders have full control over their crypto assets.

Disadvantages of Spot trading

• No chance of earning higher profits, the traders will have to wait a long period or short period hoping for an increase in market rates.

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Advantages of Margin trading

• If the predictions on price are correct, there is a potential to earn higher profits
• Margin trading reduces the threat of getting hacked as leveraged trading reduces the amount of capital that an exchange would hold.
• Margin trading can be a great tool to increase profits for traders who has good knowledge of the cryptocurrency market.

Disadvantages of Margin trading

• Margin trading consists of high risk, it’s possible to lose your entire assets if the predictions go wrong.
• Not suitable for newcomers in trading, need experienced traders to follow this method of trading
• If the market prediction moves in the opposite direction, traders will have to add more funds to avoid liquidation
• The funds you borrow for margin call can hold a huge interest while the traders have to pay the loan amount

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