If you're buying Bitcoin or Ethereum for the first time, you're doing spot trading — buying the actual asset at today's price. But you'll quickly hear about futures, leverage, and margin trading. Understanding the difference before you touch leveraged products can save you from catastrophic losses.
Spot Trading: You Own the Asset
Spot trading is the simplest form: you buy crypto at the current market price and own it outright. If ETH is $3,200 and you buy 1 ETH, you own 1 ETH. If the price goes up 10%, you're up $320. If it drops 10%, you're down $320. You can hold indefinitely and only lose money if you sell at a loss.
- How it works — exchange fiat or stablecoins for crypto. You can hold, sell anytime, or transfer to your own wallet.
- Maximum loss — limited to what you invested. If you put in $500, the worst case is losing $500 (if the asset goes to zero).
- Complexity — low. Buy, hold, sell.
Futures and Leverage: Borrowed Risk
Futures trading lets you bet on price direction without owning the underlying asset, often with borrowed money (leverage). This amplifies both gains and losses.
Your capital: $1,000
Leverage: 10x
Position size: $10,000 (exchange lends you $9,000)
If price goes UP 10%:
Profit: $1,000 (100% return on your capital!) 🟢
If price goes DOWN 10%:
Loss: $1,000 (100% of your capital — LIQUIDATED) 🔴
Your entire position is force-closed.
You lose everything you put in.
At 10x leverage, a 10% move against you = total loss.
At 100x leverage, a 1% move against you = total loss.Key concepts:
- Long position — you profit if the price goes up.
- Short position — you profit if the price goes down.
- Liquidation — when your losses reach your deposited margin, the exchange force-closes your position. You lose your entire margin.
- Funding rate — a recurring fee paid between long and short traders to keep futures prices aligned with spot. Holding a leveraged position costs money over time.
The Numbers Don't Lie
Studies from Binance and Bybit data consistently show that 70–80% of retail futures traders lose money. This isn't a game where most people win but some lose — it's a game where most people lose.
Why do so many lose? Leverage amplifies emotional decision-making. A 5% dip that's perfectly normal in spot trading becomes a 50% loss at 10x leverage, triggering panic or liquidation. Crypto's natural volatility (20–30% swings in a month are common) makes leverage particularly dangerous.
When Futures Make Sense
Futures aren't inherently bad — professional traders and institutions use them for:
- Hedging — if you hold a lot of ETH and want to protect against a short-term drop without selling, you can short futures as insurance.
- Capital efficiency — experienced traders use low leverage (2–3x) to free up capital for other positions, with strict stop-losses.
Side-by-Side Comparison
Feature | Spot Trading | Futures/Leverage
─────────────────|─────────────────────|──────────────────────
You own the asset| Yes | No (just a contract)
Maximum loss | What you invested | What you invested*
Profit potential | Unlimited (no cap) | Amplified by leverage
Can you be | No | Yes (liquidation)
force-closed? | |
Holding cost | None | Funding rate fees
Complexity | Low | High
Recommended for | Everyone | Experienced only
beginners? | |
* With isolated margin. Cross-margin can lose more.The best approach for most people: stick to spot trading and dollar-cost average into positions over time. It's boring — and that's exactly why it works. For the mindset and rules behind sustainable investing, see our risk management guide.