What is Spot Trading?

1、What is spot trading?

Tokens like Bitcoin and Litecoin are usually priced in USD. We call this a currency pair, which a digital asset’s value is determined by its comparison to another currency. For example, the BTC/USD pair represents how much USD is required to buy one BTC, or how much USD will be received for selling one BTC.

The same applies to price LTC with BTC, which is the amount of BTC an LTC worth. Token-to-spot trading refers to exchanging a digital asset with another digital asset. If we price LTC with BTC, an LTC/BTC pair emerges. It represents how many BTC is required to buy one LTC, or how many BTC will be received for selling one LTC. For example: according to BKEX’ index on 18 Aug, 1LTC=0.0099BTC.

There are currently 2 markets available in BKEX’ spot trading: ETH&USDT markets.

2、What are the differences between spot trading and traditional fiat-to-spot trading?

Traditional fiat-to-spot trading is the exchange between digital assets and fiat currency (e.g. USD). If you buy BTC with USD, and BTC rises afterward, you can sell it back for more USD. If it drops, you can sell for less. For example, you buy 0.5BTC with 5,000 USD when 1BTC = 10,000USD, and it rises to 20,000USD afterward. You may then sell your 0.5BTC for 10,000 USD.

While Tokens Trading is pretty much the same, except fiat (RMB) is replaced by token (USDT).  For example, you buy 1ETH with 0.1USDT when 1ETH=0.1USDT, and it rises to 0.2USDT afterward. You may then sell your 1ETH for 0.2USDT.

3、Benefits of spot trading

(1) Lower the cost of converting currencies

(2) Provides an opportunity for arbitrage within the platform

(3) Greater anonymity

(4) More convenient digital assets between the conversion and circulation

In traditional digital asset exchange, only fiat-to-spot trading is available. If I want to buy ETH with BTC, I will have to sell BTC (fee applies) first and then buy ETH (fee applies). The service fee will be doubled in the process.

With spot trading, we can buy ETH with BTC directly, reducing both time and cost.

4、How are the prices in spot trading determined?

Like traditional fiat-to-token trading, the market prices of spot trading are determined by supply and demand. When there is a buying pressure, the price rises. When there is a selling pressure, the price drops. For example, if there are more people willing to exchange BTC to LTC in the market, there will be more demand than supply of LTC. Therefore, LTC/BTC price will rise, meaning that buying an LTC would require more BTC.