8126
10 min

What Is the Difference between Margin Trading and Futures Trading?

What Is the Difference between Margin Trading and Futures Trading?

Margin trading and Futures trading are advanced tools, both in the stock market and digital asset market. On the WhiteBIT exchange, it can be used for more efficient operations. At the same time, spot market trading is the most common and basic, and margin and futures trading offer more advanced features.

By the end of this article, you will better understand the basics of these tools, and you will be able to make an informed decision about which is best for you.

What is leverage?

Leverage is borrowed funds that you can use to make more profit. On WhiteBIT, the leverage can reach up to 100x of the initial margin amount.

When you see the inscription “Leverage 2x, 5x, 10x”‎, the number next to «x» indicates the ratio of your funds to borrowed funds. With a leverage of 2x, you trade at a ratio of 1:2. This means that the crypto exchange provides a loan two times larger than your original amount.

For example:

You have 1000 USDT and want to buy Bitcoin (BTC). Let’s imagine that 1 BTC is worth 10,000 USDT. So you can buy only 0.1 BTC. Now let’s imagine that you use a leverage of 10x, and with it, you have 10 000 USDT. So you can buy 1 BTC using the exchange’s borrowed funds.

What is Crypto Margin Trading and How Does It Work?
Related Article

What is Crypto Margin Trading and How Does It Work?

Read the article

Margin and Futures trading: what’s the difference?

Margin trading is a leveraged trading tool. Usually implemented with leverage, which we talked about earlier. If you trade with leverage, you can buy more assets and earn more in case of a successful transaction.

The initial funds that the user invests in the order are called the margin. It forms all “X” s of leverage, which will increase the amount of trade.

Margin trading is used for long and short positions. A long position implies an increase in the asset, and a short means a fall.

If you open a long position and the asset starts to fall, the exchange may use Margin Call. It means you must add funds to the order to keep it active. Previously, on the stock exchanges, the broker called the trader and said that the asset was falling and it was time to deposit funds to secure the position, so there was no liquidation. That’s why it’s called “Call.” Now the user receives only a notification.

The main advantage of margin trading is increasing profits and/or diversifying the portfolio with a small amount of capital. That is, you can open one or more orders on different positions with an amount greater than you have, thereby protecting positions from high market volatility through leverage.

But margin trading also has a downside. It is considered high risk. If the purchased asset starts to fall, you will lose your funds. Therefore, before trading with leverage, remember to weigh the pros and cons.

Related Video

Mastering Margin Trading: A Brief Tutorial For Traders!

Futures trading based on futures contracts. It is an agreement to buy a specific amount of an asset at a specific price in the future.

For example:

Your friend grows apples and usually sells them for $5 per kilo. You know that the apple demand will increase, costing $10 per kilo. So you want to buy three kilograms of apples from a friend for $15. Now winter and apples will be only in the spring. You agree that you will make this deal with him after a certain time. So a friend guarantees that he will sell you three kilograms of apples on May 10, and you are guaranteed to buy them at an agreed price of $15, even if the market price of apples is higher by that time (if lower, you still pay under the contract). The agreement between you is the futures. In turn, you can resell these futures to your brother, who will already be obliged to buy apples on May 10.

Futures are classified as derivative financial instruments. They can be opened in long and short positions. Initially, futures contracts were used to hedge (insure) risks. With their help, you can earn and “protect” assets.

Related Video

Futures Trading Basics: A Fast-Track Guide for Success

What is the key difference?

The main difference between futures and margin trading is in the markets in which they are traded. Margin trading directly depends on the spot market, as the user trades/borrows real assets, not derivative contracts as on futures. Accordingly, all trades will go through the order book, so it is necessary to consider the instrument’s liquidity when choosing leverage.

In margin trading, there are usually more pairs available. So if you want to trade something specific, check whether such assets are available.

Here are some more distinctions:

Different price movement charts (trading happens on different markets)
Different fees when entering and exiting positions
Different fee-charging schemes for holding positions

Which tool to choose?

As you can see, the tools are different and are used for different purposes. Both methods are risky, so they are suitable for more experienced users.

If you are a beginner, use these tools carefully.

There are no perfect and 100% profitable trading instruments. Each is good but has risks and disadvantages, and the result depends only on your knowledge and experience. Remember, you set the level!

WhiteBit icon
WhiteBIT Futures Trading
Go now
Share to
Published by
Author: WhiteBIT WhiteBIT
The whole world of cryptocurrencies in your pocket
Always at your fingertips

Recent Articles

What Is Etherscan and How to Use It

Sent a token on the Ethereum network and it hasn’t shown up yet? Wondering if something’s wrong with your...

Beginners Guide on How to Use WhiteBIT Crypto Exchange

Cryptocurrency trading might seem daunting at first, but with WhiteBIT, it doesn’t have to be. In this ar...

What Is a Rug Pull And How to Avoid It?

Every cryptocurrency investor faces the inherent risk of losing funds, with one of the most hazardous and...

Trade with 1×10 Trading Bot on WhiteBIT

We are glad to announce the partnership with 1×10, a Telegram trading bot that allows automated trad...

Flexible Plans for Crypto Lending

We are taking WhiteBIT Earn to a new level—introducing flexible Crypto Lending plans that allow you to ea...

More News

Go to the Category
Exploring the MEW Token: A Meme Coin on Solana

The cryptocurrency world is constantly evolving, and meme coins have carved out a unique niche within it....

What are AI Crypto Coins: Full Beginner’s Guide

The crypto market is experiencing another wave of innovation—AI tokens. Digital assets associated with ar...

What is crypto market making?

The concept refers to providing liquidity to cryptocurrency markets by actively buying and selling digita...

How to Earn Passive Income With Crypto

Cryptocurrencies have opened new ways for generating passive income. The concept of earning money while y...

What is Solidus Ai Tech?

Solidus Ai Tech claims to be at the forefront of democratizing artificial intelligence by creating a full...

ICTC: up to 1,000,000 USDT is already waiting

Compete on May 9 – 10 and win real prizes.

Download App

scan the QR code