Days like today often flash headlines of massive liquidations, while the terms ‘spot’ and ‘futures’ mystify many. Let’s break down these complex terms and their significance in the crypto market.
ELI5 (Explain Like I’m 5)
Suppose you’re at a school fair. You see a toy you want, but you only have enough tickets to buy it now (that’s spot buying). But your friend tells you he will give you the toy next week, and you can pay him the same number of tickets then (that’s a futures contract). You’re lucky if the toy becomes popular and needs more tickets next week! But you’re not so lucky if the toy gets less popular and needs fewer tickets. Now, imagine the principal says no toys can be bought or sold anymore (that’s liquidation).
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