Spot and contract are two different trading mechanisms, just like stocks and futures, each with its own advantages and disadvantages. Different trading mechanisms have different operating methods, which can be understood as using different tools to make profits for you.
Advantages of spot goods
1. If you buy spot goods, they belong to you. You can buy as much goods as you want. Even if the price drops sharply, the goods still belong to you. If the market rises later, you will still make money;
2. As long as the value of the goods remains, everyone still recognizes it and even more and more people recognize it. Although it is uncertain how long it will take, we can still look forward to it in the future;
3. For currency lovers with low risk appetite, the technical requirements for spot currency are not high, because you are interested in its potential for future appreciation and do not need to pay attention to price fluctuations (it should be noted that there are also coins that have returned to zero, even if It’s spot stock and there are still risks).
Advantages of contracts
1. Two-way trading has two directions: long and short. One more direction means one more choice, and one more choice means one more profit opportunity. Even if you place an order with your eyes closed, there is a 50% chance of profit;
2. The margin system is what everyone calls leverage. For example: a down payment of 1 million for a house only requires 30%. You only need to pay 300,000 to temporarily own the house. When the house price rises to a value of 1.5 million, When you resell it, it is equivalent to earning 500,000 with 300,000. If you have 3 million to buy 10 houses in this way, it is equivalent to earning 5 million. If the down payment requires 100% of the funds, you will need 1,000. Only a capital of 10,000 yuan can earn 5 million yuan. The high threshold blocks the opportunity for ordinary people to make a fortune. This is the familiar practice of real estate speculators, and the same principle applies to any investment. It also illustrates the advantages of the margin system. It can lower the threshold for participation and allow more people to have the opportunity to make big gains with small things;
3. Hedging (also called risk hedging), for example, if the same price is 100,000 yuan, if you buy all spot stocks and the price is 10,000 yuan, you can buy 10 pieces. When the market price drops by 10%, you will lose 10,000 yuan. And if you use 50,000 yuan to buy 5 spot stocks, then use 5,000 yuan margin to open 10 times leverage, buy a contract worth 50,000 yuan to go short, when the market price drops by 10%, the spot loss will be 5,000 yuan, and the contract profit will be 5,000 yuan, which can just offset the loss. No loss, no gain, this is hedging;
4. Ignore the bull and bear trends. Whether it is a bull market with a sharp rise or a bear market with a sharp fall, it has no impact on the contract. As long as there is enough room for the market to fluctuate up and down, there will be opportunities for profit;
5. Opportunities to get rich suddenly, because leverage brings the attribute of making a big difference with a small amount. In theory, you can earn tens or hundreds of times of profits at a low cost. In a bear market, it is no longer possible to buy dozens or hundreds of times of coins. The previous chaos has become history. Only the contract market has this opportunity. This is why the global contract market transaction volume is so huge.
Everything has two sides. After talking about the advantages, let’s talk about the disadvantages. The disadvantages also need to be paid attention to.
Disadvantages of spot
1. You get what you pay for, and the leverage ratio is 1:1. Since the spot market is a one-sided market, it is highly dependent on price increases. You can either make money by rising unilaterally, or buy low and sell high in the swing band to earn the price difference. It’s the same if you can’t buy well. Quilt cover, especially in a bear market, is accidentally set up by Gouzhuang;
2. There are too many currencies and the various messages are difficult to distinguish. The project team's IQ in writing stories and white papers is much higher than the poor seven-second memory of leeks. Once you get on a pirate ship in a bear market, it will be difficult to think about it. The probability of the small air currency eventually returning to zero is very high. If you feel that the risk of contract liquidation is high, then what difference does it make if the spot price returns to zero? It’s just a frog boiled in warm water;
3. Time cost and opportunity cost. Many friends must have experienced this in 2018 and 2019. It doesn’t make much sense to cut off the currency that has fallen by more than 80%, and the wait is far away. I can only passively comfort myself as long as the currency is there. There is still a chance. Even if it doesn’t return to zero, if you wait 3-5 years to get your money back, what is your original intention of speculating in coins? If you are trapped in a high position, theoretically you will not lose money as long as the price rises back later, but in fact, if you calculate the time cost and opportunity cost, the price is also very high.
Contract Disadvantages
1. The technical requirements are very high. If the direction is wrong and the margin is insufficient, the investor will be liquidated. The margin is equivalent to the deposit. When the market fluctuates greatly and the deposit is not enough, the investor will be liquidated. This is very important for technical analysis, position management, and mentality. There are greater requirements in control and other aspects;
2. Behaviors such as malicious insertion of exchanges and malicious market control by large investors will pose a threat to our assets. Of course, sometimes it is unfavorable and sometimes it is beneficial. This also depends on luck. Overall, there are still risks. Then again, , what can you do without risk?
Contracts are not the devil, they are just tools. Just like a kitchen knife, when used in the kitchen it is a kitchen utensil, and when used in a fight, it is a murder weapon. How to use it correctly is what we should pay attention to and think about. Technical analysis, position management, point selection, stop-profit and stop-loss, mentality control, etc. are all very important aspects of contract making. These all determine whether we can make good use of this tool and whether it can bring us huge profits.
