Every crypto trader can say with certainty that crypto markets are very volatile. Because of this, it is quite difficult to predict further changes in the price of a particular coin. Therefore, in the field of cryptocurrencies, the question of trading strategies that will be independent of rapid changes in the value increasingly arises. Futures spread trading belongs to such a strategy. So if you want to know the answer to the question “What is futures spread trading?”, read this article to the end.
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The concept of the spread
What is spread in cryptocurrency trading?In general, it is the difference between a buyer’s maximum and a seller’s lowest price for a cryptocurrency. These figures are also known as the bid and ask.
- Bid – the maximum price of the buyer, for which he is ready to buy a certain amount of cryptocurrency.
- Ask – the seller’s price. He is ready to sell his digital assets for this minimum value.
Trading spread definition in simple words means that each cryptocurrency has two market prices: the one at which it can be sold and the one for which it can be bought. The first one is determined by the buyer and the second one by the seller.
The spread exists because the buyer and the seller are not ready to concede to each other and do not hurry to sell or buy assets. To make the deals happen quickly, there are market makers at the exchange. These are professional participants in any market. They conclude a contract with the exchange and are obliged to maintain a certain spread in the order book. For this, they receive preferences and rewards from the exchange. For example, their orders are executed first, and their commissions are minimal.
There are two types of spread:
- Fixed – the price difference is always the same, regardless of market fluctuations. This type of spread does not exist in the cryptocurrency space. It has several advantages, the main of which is stability. Among the disadvantages are usually high values, which cannot be reduced.
- Floating (non-fixed) – fluctuates constantly and is common in the cryptocurrency market. Its strong point: frequent decreases to minimum values (sometimes – almost to zero).
The magnitude of the spread is determined by the asset’s value and liquidity, as well as the trading volume. The wider the spread, the more buyers there are. And vice versa: the larger the spread, the fewer offers there are.
What is futures spread trading?
Futures Spread Trading is the synthetic pair of two opposite futures contracts – long and short. Each contract has a different expiration date. For example, a long contract expires in July, and a short contract in February.
The trader wagers on the price difference between the two contracts rather than trading the value of a specific coin. Because a long position will lose money if the price of bitcoin declines, while a short position would gain money, this method has far lower risk than conventional trading. A short position will experience a loss and a long position will experience a profit if the price of BTC rises. A calendar spread is another name for this type of spread.
Among the types of spread trading, we can also distinguish the inter-commodity and interexchange spreads.
The interexchange spread implies the simultaneous purchase of assets on one exchange and sale on another. An inter-commodity spread involves the buying and selling of different, but related assets. These are the basic spread strategies in futures trading.
Futures spread betting is also quite popular. What is spread betting in trading? This is a strategy in which participants do not own the cryptocurrency they are betting on. Players betting on the spread are simply making assumptions about whether the price of an asset will rise or fall.
Spread betting is leveraged and can potentially be a profitable method of investing, although it does involve a degree of risk. Therefore, it is more suitable for investors who:
- have some experience in financial markets;
- want to diversify their investment portfolio;
- are more interested in short-term trading opportunities.
However, we do not recommend this method as a basic way to earn on spreads, because it has more to do with gambling than trading on the exchange.
Where is the most convenient to trade the spread?
Most trading terminals of significant cryptocurrency exchanges use spread trading. However, automated trading systems are increasingly being used by many traders.
Wundertrading is among the top spread trading platforms. It is intended to make trading easier and to automate the majority of trader tasks. You may trade spreads from many cryptocurrency exchanges simultaneously in one
You must first register for an account with Wundertrading and then use its API to link the accounts of your cryptocurrency exchanges in order to begin spread trading, such as bitcoin futures spread trading. The spread trading section includes instructions for this straightforward setup.
