In the cryptocurrency market, spot trading and futures trading are the two most common methods of trading. Understanding the differences between them can help you choose the trading strategy that best suits your needs, whether for long-term holding or short-term trading.

What is Spot Trading? 

Spot trading is similar to everyday purchasing behavior. It refers to the direct buying or selling of cryptocurrencies at the current market price. When you purchase  spot assets on LBank (e.g., BTC, ETH), it means you actually own those assets. You can withdraw them to a personal wallet or use them for staking, on-chain interactions, and more.

Features of spot trading include:

  1. Immediate Settlement: Assets are credited to your account instantly after the trade.

  2. Asset Ownership: You own the assets.

  3. No Leverage Risk: Trades are made using your own funds without borrowing or risk of forced liquidation.

What is Futures Trading? 

Futures trading is a type of "derivative financial product", where you trade the price movement of a cryptocurrency rather than the asset itself. Through futures, you can "go long (bullish)" or "go short (bearish)" on a specific cryptocurrency, using leverage to amplify profits or losses.

Features of futures trading include:

  1. Go Long or Short: You can profit whether the market goes up or down.

  2. Leverage Available: Trade larger positions by putting up a small margin, increasing capital efficiency.

  3. Higher Risk: Leverage amplifies both profits and losses, potentially resulting in forced liquidation.

Types of Futures Trading:

  1. Perpetual Futures: No expiry date; can be held indefinitely. Common in major trading pairs like BTC/USDT.

  2. Delivery Futures: Have a specific expiration date. Automatically settled upon expiration.

 

LBank offers perpetual futures trading with no fixed expiry, allowing users to hold positions indefinitely if the Maintenance Margin Ratio remains below 100%. A funding rate mechanism balances costs between long and short positions, aligning futures prices with spot prices and enhancing market liquidity.

Margin and Liquidation in Futures Trading 

Before opening a new position in the futures market, the system will  calculate the required margin. Margin types include:

  1. Initial Margin: When opening a position, the available margin in your account must be greater than the Initial Margin.

  2. Maintenance Margin: If your Maintenance Margin Ratio = Maintenance Margin / Margin Balance ≥ 100%, your position will be forcibly liquidated. Forced liquidation incurs additional liquidation fees. You can manually close your position beforehand to avoid forced liquidation.

⚠️ Please be sure to manage your position risk and set stop-loss/take-profit orders to avoid unnecessary losses.

Why Do Futures Prices Differ from Spot Prices?

Leverage and imbalances in long/short positions may cause temporary differences between futures and spot prices. LBank’s Funding Rate Mechanism aligns futures prices with spot prices (e.g., BTC/USDT), promoting long-term convergence, though short-term discrepancies may persist.

Key Differences Between Spot and Futures Trading

 

Spot Trading

Futures Trading

Asset Ownership

Yes, you actually own the cryptocurrency

No, you only hold a price contract

Leverage Support

Not supported

Supported (up to 200x, depending on the trading pair)

Profit Direction

Only long positions—profit from price increases

Long or short—profit from both rising and falling prices

Risk Level

Relatively low, no liquidation risk

Higher risk, with potential for forced liquidation

Costs/Fees

Only spot trading fees

Includes trading fees, funding rates, etc.

Price Mechanism

Real-time market price from the spot market

May differ from spot price; adjusted via funding rates