In this crypto trading guide about 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 Perpetual Swaps
- Binance 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.
What is a crypto trading instrument?
According to Investopedia, “Financial instruments are assets that can be traded”
The asset can be cash, a contractual right to deliver or receive cash or another type of financial instrument, or evidence of one’s ownership of an entity.
Further, a financial instrument is a medium which can be traded, commonly categorized into two categories: cash instruments and derivative instrument.
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. Basically, crypto spot trading means that you buy a cryptocurrency for the market price and after this you own that specific cryptocurrency. Spot trading is very similar to exchange one currency for another.
For example, if you buy any amount of Bitcoin on Binance exchange you have made a spot trade. It doesnt matter if you buy the Bitcoin for USD or ETH or any other currency. Also, it doesnt matter how much you.
If you are interested in spot trading and not derivative trading, or margin trading, I would look for an crypto exchange and not a crypto trading platform.
Crypto Margin Trading
Crypto margin trading means that you borrow funds to get leverage.
Margin trading can be quite complex an we recommend you to calculate a bit before you start to trade. Also, you should use stop loss when you trade 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 $10.000 USD but uses 3x leverage. Your position is now worth $30.000, because you lent $20.000. Your collateral(initial margin) is $10.000
- Now, Bitcoin decreases with 10% and your position is worth $27.000. Your collateral is now only worth $7.000.
- Once your collateral drop below a certain level(margin level) your trading site will ask you to deposit more money.
- If your collateral drop even more 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, with most popular being Bitfinex and Kraken. We also have a special blog post on this topic, a comparison of crypto margin trading platforms.
Bitfinex Margin Trading
This platform is considered to be the largest one in the world in terms of USD to BTC daily trade. Bitfinex offers numerous functions at your disposal when engaging in margin trading. The marketplace offers an adequate number of cryptos (over 30) of them and trading pairs (over 70 of them).
Kraken Margin Trading
This European trading platform offers both simple exchange and margin trading marketplaces. You have several levels of trading forms, them being Simple, Intermediate, and Advanced. The limit functions allow you to set price restrictions, so your margin trading profit/loss would be completely under your control. To get more details regarding Kraken, make sure to read our Kraken review and analysis of the platform.
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.
There are several platforms offering crypto futures contracts and BitMEX is one of them.
BitMEX Futures Trading
BitMEX is one of the leaders in the industry when it comes to crypto futures. You have the ability to engage in contracts with the help of leveraging 100x for bitcoin. Other cryptos that are also available for futures are Cardano, Bitcoin Cash, Ethereum, Litecoin, and Ripple.
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.
The platform offers CFDs for cryptos like bitcoin, Ethereum, Litecoin, and Ripple. The Markets.com, apart from coins, also has over 2.000 assets available for trade, while its services are available globally. You have the option to start out as a demo account, switching to real one once you get a hang of it.
Crypto Trading Swaps
If we are talking about the most common trading instrument, it would fair to mention swaps as one of them.
The function is used when a trader wishes to swap around his coin with altcoins owned by the platform. Many exchanges offer crypto-to-crypto service, often fixing popular cryptos like BTC, ETH, and LTC for the contract.
Binance started out form an ICO project, which resulted in a new coin (BNB) and platform as well. It is strictly a crypto-to-crypto trading marketplace with over 200 trading pairs and 100 cryptocurrencies available. The main coins for swap contracting are bitcoin, Ethereum, BNB, and USDT. You can read our review about it in our Binance review.
PoloniexThe US-based platform offers very similar services that Binance does. It is also a crypto-to-crypto trading platform, offering numerous coins for trading. Swaps are possible through trading pairs, which account for over 100 of them. Main coins for trading pairing are BTC, ETH, XMR, and USDT, as seen in the snapshot below.
Binance leveraged tokens
Binance leveraged tokens are tradable assets in the Binance spot market and this crypto trading instrument is unique for Binance.
With leveraged tokens, you can get leverage exposure to the underlying asset with no risk for liquidation.
The following cryptocurrencies are available to trade as leveraged tokens
- Bitcoin Cash
- File Coin
- Swipe (SX)
- Binance coin
Crypto Trading Instruments - Summary
In this review about crypto trading instruments, we went over 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. Both 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. We advise beginners not to use these functions right away but to educate themselves about the market first.