The pre-requisites to developing a successful exchange are the liquidity of the money flow and the market-making ability of an exchange. The primary aim of an exchange is to act as a facilitator between buyers and sellers so that trading activity can be furnished. In this case, the market is called a spot market and the activity is referred to as spot trading.
On the other hand, since investors are playing with their own money, the market trade activity is limited and exhibits a total pool of investments behind the table of investors only. What’s even more interesting is that since the liquidity improves the trade activity, financial practitioners have introduced a wide range of derivative products that involve margin trading. The term refers to trading on margin and increasing the capital limit up to 10 times of the initial investment. The benefits of margin trading are higher trade volumes, more interest developed by traders, increasing customer base, and in the end more commissions on the exchange. On the other hand, while it does increase the risk, the appetite of exchange to bring riskier investors puts more capital at stake, and the products are considered to be a charm of the newly evolving financial markets.
