Seven Aspects Of Crypto Exchanges Over Traditional Stock Exchanges

Many of these advantages are especially relevant for retail investors which are far better using Crypto exchanges when compared with traditional exchanges. So traditional exchanges should begin to move or face the fate of the dinosaurs. It won't be long until starting to determine the technology and concepts of crypto exchanges deployed for stock, bond, currency and trading options. This doesn't suggest stocks need to become blockchain-based tokens, but instead that tokens can be used to represent stockholdings pretty easily and transacted blockchain style.

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  1. Fractional purchasing
    With crypto exchanges, you can purchase whatever fraction you need from a asset. What this means is in order to invest $523 in bitcoins you can do just that. You don't need to get a whole bitcoin, you can buy any fraction of it (e.g. 0.003 BTC). This allows small investors more flexibility and in addition causes it to be a lot easier to generate balanced portfolios with anywhere.

With traditional exchanges, you will need to buy at least one stock and you'll purchase only whole numbers. This could not an issue for big-time traders but retail investors will find it too lumpy. A Google or Amazon stock is trading for north of $1.000 making it a big commitment, to not discuss about it the $325k Berkshire Hathaway stock.

There is really pointless for this except the fact once stock certificates were paper documents that couldn't be slashed into smaller pieces. Nowadays fractional trading and investing is perfectly feasible and is implemented quickly through tokenization of stocks.

  1. 24x7 trading
    With crypto exchanges, you should buy and then sell 24x7. Obviously, exceptionally web sites are down or even the blockchain is very backed-up. This really is convenient for retail investors that are usually working or busy if the information mill open. What's more, it levels the stage with regards to having the capacity to react to news including the China ICO crackdown.

With traditional exchanges, you're restricted by the "market hours". Comparable to your local physical store vs. Amazon. Naturally, institutional traders get all sort of "pre-market" and "post-market" trading that isn't available to retail investors.

Again, "market hours" made a lots of sense when real citizens were exchanging the pit. Nowadays there is no reason to never allow 24h trading as the "pre and post" markets show. Of course, if many are allowed inside the "pre and post" they've got an unfair advantage on the rest of us and may want to keep their own rules.

  1. Instant Settling
    With crypto exchanges, you can buy and then sell instantly. The exchange takes want to instantly settle depending on their custody of crypto assets and formalize the change as quickly as the blockchain allows. This is extremely natural, once you hit the button you have the asset.

With traditional exchanges, your order is processed its keep is a long settling process (currently T+2 or a couple of days from close). As there is normally not an issue with, it enables High Frequency Traders advantages over us common mortals.

There's 2 problems to permit instant settling with current stock trading game infrastructure. First, you will find there's technology problem. Whilst the blockchain allows instant settling, previous technologies will need to go through a convoluted procedure for checking and rechecking. Second, the multilayered value chain which made sense in the old world takes necessary added time compared to the direct style of crypto exchanges.

  1. Transparent order-books
    Crypto order books are totally transparent in several exchanges like Kraken or Poloniex. You will see the depth of the exchange side of every market in every in the assets you might be trading. And that means you can discover how the marketplace looks as well as what can happen should you place a large order.

In traditional exchanges, you never see order books as being a retail investor that happen to be proprietary for the exchange and could be sold like a useful. The matching of order books is definitely an important advantage for market makers. Here is the main objective from the so-called "dark pools" that investment banks are coming up with.

Transparent order books will be a response to competition and consumer expectations on the either side. They also need better technology infrastructure that can cope with the increased information volume.

  1. Modern and secure interfaces
    Crypto interfaces are viewed as online and mobile perspective, with security being a key feature. They are light clients in browsers or smartphones. They could be accessed easily through the tool and use cutting edge technology. This gives convenience, speed and intuitive customer experience.

The regular interfaces I have experienced are nevertheless full applications inside a desktop setting with clunky interfaces and long load times. This probably is related to legacy applications that need to be updated but should be secured and evolved slowly.

Evolving to an alternative application interface will be challenging mainly because it will need agile practices and frameworks which can be second-nature for brand new entrants but take courage and conviction from existing incumbents.

  1. Direct-to-investor
    Crypto exchanges deal directly with retail investors and have experienced before players in the value chain beyond themselves. When you are with an exchange you might be directly actually talking to your custodian, your marketplace, your agent, etc... As a result sense within a world where decentralized trust cuts down on needs for intermediaries. There are some exchange mechanisms such as Shapeshift which are even more direct and hook you up to another side of the trade.

Traditional exchanges use a big list of players. They have got brokers, that interact with the exchange for your benefit. They have got custodians, taking proper your assets. This made sense in a world without blockchain where decentralized trust was complex. Now exchanges grapple using the question of going direct and bypassing their partners, much like consumer goods companies when eCommerce was starting.

In a Blockchain-enabled world there is decentralized trust and therefore its not necessary so many actors to produce trades secure. This can probably take to a progressively leaner value chain model.

  1. Variable and transparent fees
    Crypto exchanges have transparent and typically low fees. They may be transparent because being direct there's nowhere to cover, so it will be very obvious exactly what is the exchange charging. Crypto fees range between 0,10-0,30% towards the very expensive but convenient Coinbase with 1,5% to 4% fees.

Fees in traditional brokers are hard to know while they most often have a variety of components. They could be low for bigger trades, but sometimes typically figure to $1 to $7 per trade which may be pricey for some transactions.

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


Overall, it looks like a classic shift in the previous model with all of its legacy limitations on the model which a new technology enables. Due to the already digitized nature of exchanges and stocks, bonds and options we can expect movements to begin fast and the change to be swift. A lot more like classifieds within the newspaper industry compared to slower shift to e-commerce. Regulation could be a hurdle, but financial authorities seem offered to more potent, fair and quick transaction methods. The exchange that moves quicker can probably eat the lunch of competitor exchanges. Much like companies like Schibsted launched digital classifieds across Europe and dominated the course. So traditional exchanges should face a brand new reality and find out the way they are likely to get their level towards the new defacto standard.

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Pub: 08 Feb 2023 13:44 UTC
Views: 119