Seven Aspects Of Crypto Exchanges Over Traditional Stock Exchanges

Most of these advantages are specially relevant for retail investors which are far better served by Crypto exchanges when compared with traditional exchanges. So traditional exchanges should start to move or face the fate from the dinosaurs. It will not be long until we start by getting to see the technology and concepts of crypto exchanges deployed for stock, bond, currency and trading options. This doesn't mean stocks must become blockchain-based tokens, but rather that tokens enable you to represent stockholdings pretty easily and transacted blockchain style.

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  1. Fractional purchasing
    With crypto exchanges, you should buy whatever fraction you desire associated with a asset. This means if you want to invest $523 in bitcoins you can do this. You don't need to obtain a whole bitcoin, you can purchase any fraction than it (e.g. 0.003 BTC). This enables small investors more flexibility as well as causes it to be a lot easier to generate balanced portfolios with any amount.

With traditional exchanges, you must buy at least one stock and you may purchase only whole numbers. This might not be a difficulty for big-time traders but retail investors might find it too lumpy. A Google or Amazon stock is trading for north of $1.000 which makes it a major commitment, never to speak of the $325k Berkshire Hathaway stock.

There exists really absolutely no reason with this except the reality that once stock certificates were paper documents that couldn't be cut into smaller pieces. Nowadays fractional trading and investing is perfectly feasible and could be implemented quickly through tokenization of stocks.

  1. 24x7 trading
    With crypto exchanges, you can buy and then sell on 24x7. Obviously, exceptionally web sites are down or perhaps the blockchain is very backed-up. This is convenient for retail investors who will be usually working or busy once the marketplace is open. In addition, it levels the game with regards to having the ability to reply to news such as the China ICO crackdown.

With traditional exchanges, you happen to be tied to the "market hours". Just like your local physical store vs. Amazon. Naturally, institutional traders get all kind of "pre-market" and "post-market" trading which is not accessible to retail investors.

Again, "market hours" made a large amount of sense when real individuals were trading the pit. Nowadays there is absolutely no reason never to allow 24h trading because the "pre and post" markets show. Obviously, if many are allowed inside the "pre and post" they have got an unfair advantage over the rest of us and may want to keep their own rules.

  1. Instant Settling
    With crypto exchanges, you can buy and then sell on instantly. The exchange takes care to instantly settle according to their custody of crypto assets and formalize the progres as quickly as the blockchain allows. This is extremely natural, as soon as you hit the button there is an asset.

With traditional exchanges, the transaction is processed and then there can be a long settling process (currently T+2 or two days from close). Nevertheless there is normally no issue with, it enables High Frequency Traders advantages over us common mortals.

There are 2 problems to allow for instant settling with current stock exchange infrastructure. First, there is a technology problem. While the blockchain allows instant settling, previous technologies need to go via a convoluted technique of checking and rechecking. Second, the multilayered value chain which made sense inside the yesteryear takes necessary more hours as opposed to direct model of crypto exchanges.

  1. Transparent order-books
    Crypto order books are totally transparent in many exchanges like Kraken or Poloniex. You will see the depth from the buy and sell side of each market in each from the assets you might be trading. And that means you can know how industry looks and just what can happen in case you convey a large order.

In traditional exchanges, that you do not see order books as a retail investor which are proprietary to the exchange and is sold being a value added. The matching of order books is definitely an important advantage for market makers. Here is the main objective with the so-called "dark pools" that investment banks have created.

Transparent order books will be a results of competition and consumer expectations about the one side. In addition they need modern tools infrastructure that could deal with the improved information volume.

  1. Modern and secure interfaces
    Crypto interfaces are viewed as on the internet and mobile perspective, with security being a key feature. They are light clients in browsers or smartphones. They can be accessed easily from any tool and use high tech technology. This permits convenience, speed and intuitive customer experience.

The standard interfaces I've experienced are nevertheless full applications inside a desktop setting with clunky interfaces and long load times. This probably has to do with legacy applications that should be updated but must be secured and evolved slowly.

Evolving to a new application interface is going to be challenging as it will require agile practices and frameworks which might be second-nature for first time entrants but take courage and conviction from existing incumbents.

  1. Direct-to-investor
    Crypto exchanges deal directly with retail investors and have few other players in the value chain beyond themselves. When you find yourself with an exchange you are directly actually talking to your custodian, your marketplace, your agent, etc... This may cause sense in the world in which decentralized trust cuts down on needs for intermediaries. There are several exchange mechanisms like Shapeshift which might be even more direct and hook you up to the other side in the trade.

Traditional exchanges use a long list of players. They've brokers, that communicate with the exchange on your behalf. They've got custodians, taking proper care of your assets. This made sense within a world without blockchain by which decentralized trust was complex. Now exchanges grapple using the question of going direct and bypassing their partners, comparable to consumer goods companies when eCommerce was starting.

In the Blockchain-enabled world there is decentralized trust thereby you don't need a lot of actors to make trades secure. This will likely probably decide to try a progressively leaner value chain model.

  1. Variable and transparent fees
    Crypto exchanges have transparent and typically low fees. These are transparent because being direct there is certainly nowhere to disguise, so it will be very obvious exactly what is the exchange charging. Crypto fees cover anything from 0,10-0,30% for the extremely expensive but convenient Coinbase with 1,5% to 4% fees.

Fees in traditional brokers are difficult to be aware of because they most often have many different components. They may be low for larger trades, but can typically figure to $1 to $7 per trade which may be pricey for a few transactions.

Fee schedules are a result of cost and competition. With blockchain type infrastructure cost will be reduced very significantly. Simultaneously, increased competition will represent a secular trend of shrinking fees for retail investors with ETF and crypto exchange fees to be the gold standard this agreement others converge.


Overall, it appears as though a well used shift from the previous model with all its legacy limitations on the model that the new technology enables. In the already digitized nature of exchanges and stocks, bonds and options we can expect movements to begin fast along with the switch to be swift. Similar to classifieds in the newspaper industry than the 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. Much like brands like Schibsted launched digital classifieds across Europe and dominated the category. So traditional exchanges should face a new reality and see the way they will placed their level to the new gold standard.

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Pub: 08 Feb 2023 13:27 UTC
Views: 133