Perpetual Futures vs Spot Trading

There are several ways to make money with cryptocurrency trading. However, picking the best strategy can be challenging, particularly when comparing perpetual futures and spot trading. Both have distinct advantages, risks, and use cases, making them appropriate for various traders.

Whether you are a short-term or long-term investor, it is important to understand the distinctions between spot trading crypto and perpetual futures. Learn more about how they work, their benefits and drawbacks, and when to use them.

Key takeaways:

• Spot trading involves buying and owning crypto directly, which is ideal for long-term investors.
• Perpetual futures allow leveraged trading without expiry, which short-term traders prefer.
• The choice between perpetual futures vs spot trading depends on risk tolerance and strategy.

What is spot trading in crypto?

Spot trading is the most straightforward way to buy and sell cryptocurrencies. When you trade spot, you exchange fiat (like USD) or another crypto for an asset (e.g., Bitcoin or Ethereum) at its current market price. Unlike derivatives, you take immediate ownership of the asset, meaning you can transfer, stake, or hold it indefinitely.

Spot markets are the foundation of crypto liquidity, with major exchanges like Binance and Coinbase facilitating billions in daily volume. Since there's no leverage (unless using margin), the risks are limited to price fluctuations, and there are no liquidations or forced closures. This makes spot trading a safer choice for beginners and long-term holders.

Did you know? In December 2024, the total spot trading volume across major exchanges reached $2.14 trillion, marking an 8% increase from November's $1.99 trillion and a staggering 142% year-over-year growth.

What are perpetual futures in crypto?

Perpetual futures, or "perps" for short, are derivative contracts that let traders speculate on crypto prices without owning the underlying asset. Unlike traditional futures, they have no expiry date, allowing positions to remain open indefinitely as long as traders pay (or receive) funding rates to keep prices aligned with the spot market.

These contracts are quite popular since they allow traders to increase their gains (or losses) by offering leverage options, usually up to 100x.

Perpetual futures vs spot trading: key differences

To better understand which approach fits your strategy, here’s a quick comparison:

When to use perpetual futures vs spot trading

Uses of perpetual trading

Perpetual futures offer flexibility and leverage if you prefer short-term trading methods like swing or scalping. They can also be used for hedging, such as when you plan to short Bitcoin temporarily to reduce adverse effects but still keep it for the long run. Nonetheless, careful risk management is necessary for perpetual trading because of the significant exposure.

Uses of spot trading

If you think the token will grow over time, spot trading allows you to purchase and hold cryptocurrencies without worrying about funding fees or contract expirations. Additionally, you may use your assets in DeFi protocols or stake them for passive revenue.

Risks of perpetual futures vs spot trading

Spot trading risks

Even though spot trading is typically less risky than derivatives, many potential risks are still involved. The most evident is market risk; if prices drop after you buy, you can bear the full cost of the loss with no hedge to protect you.

Another issue is exchange risk, since centralized platforms may be subject to bankruptcies, hacks, or withdrawal freezes, which could result in your crypto being locked up if not transferred to an external wallet. During significant market movements, spot traders lose out on possible leveraged gains.

Did you know? FTX's collapse in 2022 highlighted the risks of holding assets on exchanges, preventing spot traders from accessing billions of dollars worth of cryptocurrency holdings.

Perpetual futures risks

Unlike spot trading, perpetual futures bear several unique risks. If the market moves against you, leveraged positions could be immediately terminated, potentially wiping out your entire position. This is referred to as liquidation risk, and it is particularly risky.

The other issue with funding rates is that traders must keep paying fees to keep their positions open, gradually reducing earnings. Additionally, the psychological pressure is increased by the large leverage available, which frequently results in emotional trading choices. Furthermore, perpetual markets are more vulnerable to abrupt volatility spikes and price manipulation because of their derivative character.

Did you know? Leveraged holdings can be seized immediately, as seen by the approximately $10 billion in futures liquidations that followed Bitcoin's 30% single-day crash in May 2021.

Which is more profitable: spot trading or perpetual trading?

Profitability depends on market conditions and trading style.

Spot trading: steady gains with lower risk

Spot trading crypto profits come from long-term appreciation. If you bought Ethereum at 200 in 2020 and sold at 4,000 in 2021, that's a 1,900% return, and there’s no leverage needed. The key advantage? No liquidation risk, and you can earn additional yield through staking or DeFi.

Did you know? The Bitcoin 4-year moving average helps investors identify long-term trends and cyclical opportunities, making it a valuable tool for long-term strategies.

Perpetual futures: higher rewards, higher risks

Futures may perform better in erratic or bearish markets. For example, shorting Solana with 20x leverage throughout its 2022 slide from 260 to 10 would have resulted in 5,000% gains. However, most traders lose money because they use too much leverage; a single mistake can wipe out weeks' gains.

Did you know? In the United States, between 70 and 80 percent of futures traders lose money, according to research conducted by the Commodity Futures Trading Commission (CFTC).

Ultimately, the choice between perpetual futures vs spot trading comes down to your trading goals and risk appetite. Spot trading offers safer, long-term exposure to crypto assets. At the same time, perpetual futures provide powerful leverage for short-term opportunities but with higher risks.

In addition to spot trading crypto and perpetual futures, you can increase your money by exploring other investment opportunities, such as buying and selling Web3 companies through Acquire.Fi's marketplace. Whichever approach you choose, disciplined risk management remains key to sustainable success in crypto trading.