Notes

7 Advantages Of Crypto Exchanges Over Traditional Stock Exchanges




Most of these advantages are especially relevant for retail investors which are greater with Crypto exchanges compared to traditional exchanges. So traditional exchanges should learn to move or face the fate with the dinosaurs. It won't be long until starting to find out the technology and ideas of crypto exchanges deployed for stock, bond, currency and options trading. This does not imply stocks need to become blockchain-based tokens, but that tokens enable you to represent stockholdings pretty easily and transacted blockchain style.





1. Fractional purchasing
With crypto exchanges, you can buy whatever fraction you would like of any asset. This means if you wish to invest $523 in bitcoins that can be done just that. You don't have to purchase a whole bitcoin, you can buy any fraction of it (e.g. 0.003 BTC). This enables small investors more flexibility and in addition helps it be much easier to produce balanced portfolios with anywhere.

With traditional exchanges, you will need to buy no less than one stock and you'll obtain only whole numbers. This could 't be a problem for big-time traders but retail investors may find it too lumpy. A Google or Amazon stock is trading for north of $1.000 making it a large commitment, to not speak of the $325k Berkshire Hathaway stock.

There is certainly really no reason just for this except the truth that once stock certificates were paper documents that couldn't be slashed into smaller pieces. Nowadays fractional trading and investing is perfectly feasible and could be implemented quickly through tokenization of stocks.

2. 24x7 trading
With crypto exchanges, you can purchase and sell 24x7. Naturally, exceptionally the websites are down or perhaps the blockchain is entirely backed-up. This is convenient for retail investors that are usually working or busy once the marketplace is open. What's more, it levels the game with regards to being able to reply to news including the China ICO crackdown.

With traditional exchanges, you're restricted by the "market hours". Much like your neighborhood physical store vs. Amazon. Obviously, institutional traders get all kind of "pre-market" and "post-market" trading is not accessible to retail investors.

Again, "market hours" made a large amount of sense when real citizens were trading in the pit. Nowadays there is no reason not to allow 24h trading because the "pre and post" markets show. Of course, if some are allowed inside the "pre and post" they have got an unfair advantage on the rest of us and may also wish to maintain their own rules.

3. Instant Settling
With crypto exchanges, you should buy and then sell on instantly. The exchange takes desire to instantly settle determined by their custody of crypto assets and formalize the change as soon as the blockchain allows. This is extremely natural, as soon as you hit the button you will find the asset.

With traditional exchanges, the transaction is processed and then there is really a long settling process (currently T+2 or a couple of days from close). To find out normally not a problem with, it enables High Frequency Traders advantages over us common mortals.

There are two problems to allow for instant settling with current stock market infrastructure. First, there exists a technology problem. While the blockchain allows instant settling, previous technologies have to go by way of a convoluted process of checking and rechecking. Second, the multilayered value chain which made sense from the old world takes necessary added time compared to direct model of crypto exchanges.

4. Transparent order-books
Crypto order books are totally transparent in lots of exchanges like Kraken or Poloniex. You can observe the depth in the purchase and sell side of each market in every of the assets you are trading. And that means you can know how the market looks along with what can happen in case you convey a large order.

In traditional exchanges, you do not see order books as being a retail investor that happen to be proprietary on the exchange and could be sold like a value added. The matching of order books is definitely an important advantage for market makers. This is actually the main purpose with the so-called "dark pools" that investment banks have formulated.

Transparent order books would have been a results of competition and consumer expectations for the one side. They also need modern technology infrastructure that may cope with the raised information volume.

5. Modern and secure interfaces
Crypto interfaces are viewed from the web and mobile perspective, with security like a key feature. They are light clients in browsers or smartphones. They may be accessed easily from any device and use high tech technology. This permits ease of use, speed and intuitive customer experience.

The traditional interfaces We've experienced remain full applications in the desktop setting with clunky interfaces and long loading time. This probably is due to legacy applications that ought to be updated but should be secured and evolved slowly.

Evolving completely to another application interface is going to be challenging since it requires agile practices and frameworks that are second-nature for brand spanking new entrants but take courage and conviction from existing incumbents.

6. Direct-to-investor
Crypto exchanges deal directly with retail investors and still have hardly any other players from the value chain beyond themselves. When you're within an exchange you happen to be directly talking to your custodian, your marketplace, your agent, etc... This makes sense in the world where decentralized trust reduces the needs for intermediaries. There are many exchange mechanisms like Shapeshift which might be a lot more direct and connect you to the other side of the trade.

Traditional exchanges have a very long list of players. They have brokers, that talk with the exchange for you. They've custodians, who take care of your assets. This made sense within a world without blockchain in which decentralized trust was complex. Now exchanges grapple with all the question of going direct and bypassing their partners, similar to consumer goods companies when eCommerce was starting.

Within a Blockchain-enabled world there's decentralized trust thereby it is not necessary countless actors to make trades secure. This will probably decide to use a progressively leaner value chain model.

7. Variable and transparent fees
Crypto exchanges have transparent and typically low fees. They're transparent because being direct there is certainly nowhere to hide, so it will be very obvious what is the exchange charging. Crypto fees vary from 0,10-0,30% to the extremely expensive but convenient Coinbase with 1,5% to 4% fees.

Fees in traditional brokers are hard to comprehend since they normally have a variety of components. They can be low for larger trades, but sometimes typically add up to $1 to $7 per trade which can be pricey for some transactions.

Fee schedules are caused by cost and competition. With blockchain type infrastructure cost will disappear very significantly. At the same time, increased competition will represent a secular trend of shrinking fees for retail investors with ETF and crypto exchange fees is the defacto standard which others converge.

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Overall, it appears as if a well used shift from the previous model wonderful its legacy limitations for the model that a new technology enables. Given the already digitized nature of exchanges and stocks, bonds and options expect movements to start out fast and also the plunge to be swift. Similar to classifieds inside the newspaper industry as opposed to slower shift to e-commerce. Regulation can be a hurdle, but financial authorities seem open to more effective, fair and quick transaction methods. The exchange that moves quicker often will consume the lunch of competitor exchanges. Just like the likes of Schibsted launched digital classifieds across Europe and dominated the course. So traditional exchanges should face a whole new reality and discover the way they are likely to place their level for the new gold standard.


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