This crypto trading guide for beginners focuses on cryptocurrency trading instruments. We list and compare the different trading instruments for crypto trading. These include,
- Crypto Spot Trading
- Crypto Margin Trading
- Crypto Trading Futures
- Crypto Trading CFD
- Crypto Trading Perpetuals
- Crypto Leveraged Tokens
The main aim is to provide you with basic information about each crypto trading instrument. After this, you will have the basic knowledge about them and be able to determine what trading instrument is best for your trading.
In addition, we go through the top Bitcoin trading platforms and suggest what site is suitable for trading what instrument.
No Financial Advice, Information only. Do your own research.
Cryptocurrencies are high-risk investments.
We earn an affiliate commission for marketing these sites
What is a crypto trading instrument?
Investopedia says, “Financial instruments are assets that can be traded.”
The asset can be cash, a contractual right to deliver or receive money or another type of financial instrument, or evidence of one’s ownership of an entity.
Further, a financial instrument is a medium that can be traded, commonly categorized into two categories: cash instruments and derivative instruments.
In this guide, the asset will be cryptocurrencies.
- Cash instruments are spot trading and margin trading for cryptocurrencies.
- Derivative instruments are CFDs, Futures, and Perpetual Swaps.
What is Crypto Spot Trading?
Crypto spot trading is the most basic trading you can make. Crypto spot trading means you buy a cryptocurrency for the market price, and after this, you own that specific cryptocurrency. Spot trading is very similar to exchanging one currency for another.
For example, if you buy any Bitcoin on the Binance exchange, you have made a spot trade. Therefore, it doesn’t matter if you buy the Bitcoin for USD, ETH, or any other currency. Also, it doesn’t matter how much you.
If you are interested in spot trading, not derivative or margin trading, I will look for a crypto exchange, not a crypto trading platform.
What is Crypto Margin Trading?
Crypto margin trading means that you borrow funds to get leverage.
Margin trading can be pretty complex, and we recommend you calculate a bit before starting to trade. Also, it would help if you used stop loss when you deal with leverage since you risk a liquidation which will cost you extra fees in most cases.
So, how to calculate margin trading?
Let´s take an example.
- You buy 1 Bitcoin for USD 10.000 but uses 3x leverage. Your position is now worth $30.000 because you lent $20.000. Your collateral(initial margin) is $10.000
- Bitcoin has decreased by 10%, and your position is worth $27.000. Your collateral is now only worth $7.000.
- Once your collateral drops below a certain level(margin level), your trading site will ask you to deposit more money.
- If your collateral drops, your trading site will force liquidation and pay back your loan to the lender.
Platforms that allow you to engage in margin trading are numerous, the most popular being Bitfinex and Kraken. We also have a particular blog post on this topic comparing crypto margin trading platforms.
What is Crypto Trading Futures?
Crypto Futures is a complex trading instrument, and you should know what you are doing before you start buying or selling crypto futures.
Crypto futures are derivative contracts that obligate the parties to transact Bitcoin at a predetermined future date and price.
The buyer must purchase Bitcoin, and the seller must sell Bitcoin at the set price, regardless of the current market price at the expiration date.
Several platforms offer crypto futures contracts. Read more in our article about the best crypto derivative exchange for USA.
What is Crypto Trading CFD?
CFDs (contracts for difference) are popular within the trading market in cryptocurrency world. The ability to make a contract with the brokerage company and use their volumes is something starts to appreciate.
It helps those that do not have large investments, to begin with, and allows them to make a profit from fluctuations. Platforms that allow clients to make CFDs are Markets.com and Plus500.
What are Crypto Trading Perpetual Contracts?
Crypto perpetual contracts are derivative agreements allowing investors to purchase or sell a cryptocurrency for a specified price at an unspecified point in the future.
They differ from futures contracts since futures have a specified expiration date.
The perpetual are often settled and denominated in USDT. However, Bybit and Deribit also list perpetual contracts settled and denominated in USDC. Read more about the best USDC settled perpetual contracts.
In addition, there are inverse perpetual. The Inverse perpetual contracts use a cryptocurrency(for example BTC) as the base currency. Traders need to confirm traded quantities in terms of USD (Quoted currency) and then use their base currency (such as BTC) to calculate margin, profit, and loss. Read more about the best Bitcoin BTC inverse perpetual contracts.
What are Crypto Leveraged Tokens?
Crypto leveraged tokens are a crypto trading instrument with no liquidation risk or collateral requirements.
Thus, crypto leveraged tokens are a good crypto trading product for beginners looking for leverage exposure among crypto assets.
Still, there are risks associated with this product, and it comes with many different trading fees, which can be hard to understand for a beginner.
However, if you are interested in researching leveraged tokens more, we suggest our article about the best crypto leveraged token trading sites.
Crypto Trading Instruments - Summary
In this review about crypto trading instruments, we reviewed the availability of trading tools in the crypto market. The results suggest that instruments are available not just for bitcoin but for other cryptos as well. Experts and starters can work with these tools, though more experienced traders would benefit the most.
There are also risks associated with these instruments, especially leverage. Therefore, we advise beginners not to use these functions immediately but to educate themselves about the market first.
For further reading, see our article about starting profitable crypto trading in the EU or USA.