In the Spot market, the user buys the asset and has direct ownership, and can transfer it to another user. So, the owner can decide whether to keep it or sell it at another time.
While in the Futures market, the user buys a contract that represents a coin and its quantity, meaning that the user does not own the coin.
In other words, instead of buying the actual asset itself, one speculates on the price of a cryptocurrency. In this market, the users can open a position in Long (if they believe that the price will go up) and also in Short (if they believe that the price will go down).
Profits or losses, depending on the level of correctness of the prediction.
In this Article:
In the Spot market, it works with the funds that the user has. If the user has 100 USDT, he/she can open a position for this amount and get a profit/loss on the entry and exit price of this capital.
In the Futures market, leverage is being used to open larger positions with less capital.
For example, the same user who has 100 USDT, can use only 10% of his capital (10 USDT) and open a position with leverage x10, x20, x50, etc.
This will allow him with an investment of 10 USDT, to open a position for 100, 200, or 500 USDT, and get higher profits.
In order to know the leverage limit of each trading pair in Zignaly, you can review Futures Binance Trading rules
In the Spot market, being a holder of the asset, you can have losses on the position if the currency drops in value.
Each position is independent of the others and there is no liquidation risk (this does not apply to LEVERAGED TOKENS).
In the Futures market, to use leverage, it is necessary to have collateral capital to support the trade.
So apart from having the capital invested in the position, another capital acts as collateral.
The calculation of the margin varies depending on the currency, the leverage used, and the capital invested.
When the maintenance margin is not enough, the Exchange cancels and liquidates the positions.
In the Futures market, if the margin is insufficient to maintain the open positions, there will be liquidation and all the coins will lose.
The total invested in the pool, if it is Profit Sharing, or the total in the Exchange account if it is Copy Trading or Manual Trading is at risk of this liquidation.
Depending on what assets the user borrows and what assets must be repaid, other assets cannot be used instead. Thus, the liquidation assets/ coins are only the margin assets you open the contracts with.
Finally, another difference between the Spot and Futures markets is the collection of fees.
In the spot, the Exchange charges a commission every time you open or close a position.
And in the Futures, charges an extra commission for the maintenance of the position every 8 hours. This commission name is Funding Rate or Funding Fees.
More information: What is a Funding Rate?
This is a full video of the differences between the Spot and Futures markets: