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Everything You Need To Know About Spot Trading
Spot trading is a viable option whether you are interested in commodities, forex, or even cryptocurrencies. Read on to learn more about how you can place spot trades.
What is spot trading?
As the name suggests, spot trading is a trade that takes place 'on the spot', or within a short period. The 'spot price' is the current price of an asset and is analysed in real-time.
So, if 1 United States Dollar is worth 1.491 Australian Dollars right now, this is the spot price for USD/AUD in the currency market.
Spot trading is a popular trading choice amongst investors, as it allows them to open short-term positions with low spreads and no expiry date.
How does spot trading work?
Spot trading follows a simple trading mechanism:
A position is opened at a current value and the position is closed at a new value. If this value has moved in the direction you predicted, you should make a profit. |
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If demand rises faster than supply, the current spot price rises too. If demand falls while supply is high, the spot price will drop. |
Many markers allow you to go long (buy) or short (sell) on the position. In some markets, you can choose to go long (buy) or go short (sell) on the position. In the forex market, you can open a selling position and potentially profit on a downward spot price movement.
Spot trading with CFDs
Alternatively, traders can also conduct spot trades via contracts for difference (CFDs). CFDs are a derivative that allow you track the value of an asset, without having to take ownership or hold the asset.
Spot trading with CFDs allows you to take advantage of real-time pricing and employ leverage to gain greater exposure to the market.
Spot trading in different markets
As long as the asset has a current value that can be measured over time, any commodity or asset can be spot traded. There are several markets traders can spot trade in, such as:
Commodities markets like oil and precious metals - spot gold trading is a popular choice. |
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Stock and share indices also feature current spot values that shift over time. |
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Crypto and forex are two of the most popular markets traders use for spot trading. |
What is spot trading in crypto?
How does spot trading work with crypto? Also, how do you make money spot trading crypto?
Spot trading in crypto works like any other spot trade. Sellers make an offer and request a sell price to the buyer. The buyer then places an order for the crypto token with a specific bid or purchase price. In the case of CFDs, you buy a crypto asset, speculate on its price, and then wait and see how the spot trade value moves over time.
The only significant difference is the volatility of the crypto market, which can lead to excellent profits. Many traders find this volatility exciting, and it can lead to opportunities with the right strategy.
Spot trading in forex
Currencies are an asset which constantly fluctuate in price, making them an excellent option for those interested in diverse trading avenues.
While forex futures, options, and forwards are fundamentally different to spot trades, they are still closely linked. This is because all of these derivatives rely upon current and future spot forex trading rates.
How to spot trade - Getting started
Ready to learn how to spot trade? Get started with these five steps:
1. Understand how the process works
Before undertaking any investment, it's important to understand the ins and outs of your trade strategy. TMGM provides all the resources you need to develop your trading skills.
2. Get comfortable with a trading platform
Take some time to get to know the trading platform. You'll most likely be using the platform on a regular basis to place traders, so get on top of all the features it offers.
3. Open an account with TMGM
Signing up with TMGM takes minutes, plus you'll have everything you need to get started and build your experience.
4. Pick a market to spot trade in
Browse the markets available for spot trading and select one that aligns to your trading goals. Once you feel comfortable with your chosen market, look for a spot trade opportunity through fundamental and technical analysis. Here you can also decide whether to go long or short.
5. Implement stop-loss and take-profit measures to protect trades
Stop-loss and take-profit tools help you to keep your trades within your strategic parameters. The stop-loss will automatically close your trade and limit your losses when things aren't going your way, while taking profit will keep growth sustainable when markets are surging.
6. Monitor and close your position
Monitor your position via your TMGM account and close your position when you’re ready. Your final profit or loss will then be reflected in your account.
Sign up today - Spot trade with TMGM
Build your spot trading strategy with the TMGM platform. It only takes 3 minutes to sign up!
Frequently asked question
Futures trading involves locking in the current trading rate as part of a contract and then executing this contract at a pre-determined date in the future. When the position is opened and closed, spot trading deals only with the trading rate.
The key difference in the spot trading vs. margin trading debate is the proportion of capital you'll need to put forward. You'll put forward all of the capital for a standard spot trade. If your trade is successful, you make a profit; if not, you just lose the capital you put in.
With margin trading, you're essentially using leveraged capital to supplement your own. This can magnify your profits in the case of a successful trade but will lead to significant losses if the market moves the other way.
With margin trading, you're essentially using leveraged capital to supplement your own. This can magnify your profits in the case of a successful trade but will lead to significant losses if the market moves the other way.
Spot trading can be profitable, making it very popular among forex traders worldwide. However, it all depends on your investment strategy and risk tolerance.
It's referred to as spot trading because it's trading that occurs 'on the spot'. It is a real-time value that tells traders the current price at this very moment. Throughout the trading day, this price will fluctuate up and down, but spot trading utilises the current, real-time value.
The best way to learn how to spot trade is to practise in a risk-free environment. You will be able to use a broker platform demo account to make trades and practice using different tools - but with no commitment of capital. Of course, this means no profit potential, but there is also potential for losses, making this a great way to learn essential trading skills.
Spot trading can be beneficial for beginners because it is a relatively straightforward form of trading. Spot positions deal with real-time price movements, so it is easier to track progress than other trade forms.
There is only one way to answer whether or not spot trading is suitable for you: try it yourself! If you already have some experience with the TMGM platform or with trading in general, you can try the live account immediately.