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How Does Trading Crypto Compare to Other Markets?

In this article, we briefly compare crypto trading with established global markets such as – stocks, also known as equities, and fiat currencies, better known as foreign exchange or forex.

Before we dig into how trading crypto compares to trading stocks and forex, we must first cover crypto trading platforms. As with forex, large institutions trading in crypto have access to sophisticated crypto execution venues like over the counter (OTC) desks and market makers. These venues are out of reach for most retail customers. The two most accessible options for individual traders and investors are cryptocurrency exchanges and brokers.

Centralized crypto exchanges are not under the same regulatory structure as the Nasdaq. Instead, they are loosely regulated platforms that facilitate execution custody and other various services. Exchanges can provide sufficient trading volume to customers – but generally, source from a limited amount of liquidity providers. For this reason, there can be a disparity in the token prices quoted across crypto exchanges.

Crypto brokers, like TradeStation Crypto, more closely compare to online stock trading platforms – providing self-directed customers with end-to-end execution. Unlike exchanges, crypto brokers operate across the market to source and consolidate liquidity into a single data feed, thus providing an aggregated source of liquidity for customers.

How is Crypto Trading Similar to Stock Trading?

  • Many of the same trade order types used in stock trading, such as market and limit orders, are also available with crypto brokers and exchanges. In terms of trade execution, cryptocurrencies and stocks are similar.
  • Most crypto platforms, whether an exchange or broker, charge fees in three ways: a flat commission per trade, a marked up spread, or a percentage fee based on the trading volume of the account.
  • As with stocks, going all-in on one token or coin can create significant risk. Like many investments into different assets, a diversified portfolio can reduce concentration risk.

How Is Crypto Trading Different from Stock Trading?

  • Stocks of publicly traded companies are typically regulated by the Securities and Exchange Commission (SEC) while most cryptocurrencies and tokens are not at this time.
  • Crypto traders can take advantage of round the clock trading while equities are generally open only on weekdays at certain times.
  • From an ownership perspective, stocks and cryptocurrencies differ drastically. With a stock, you purchase ownership in a company which is represented by a security certificate managed by a centralized entity. With a digital asset, each asset has unique specifications. For example, owning Bitcoin (BTC) is ownership in a network that is represented as a bearer instrument that can be self-custodied.

How Is Crypto Trading Similar to Foreign Exchange?

  • Like the cryptocurrency markets, forex is a decentralized global market comprised of banks that control the market, with access points through venues and platforms which provide customers with the opportunity to trade 24 hours per day 5.5 day’s/week.
  • Both cryptocurrencies and forex markets fluctuate based on the supply and demand equilibrium inherent in most markets. More buying pressure than selling pressure equates to higher prices and vice versa. Traders in both markets can also trade pairs such as Bitcoin/Ethereum BTC/ETH or U.S Dollar/Euro USD/EUR.

How Does Crypto Differ from Forex?

  • The forex market is the world’s largest and most liquid market and trades primarily OTC. Crypto is less liquid and trades across industry exchanges and OTC. Due to its unmatched liquidity, it is more difficult for a FX trade to influence or move the market. This is not the case with crypto, where large traders, called whales, often impact the trading price of popular crypto tokens. With that said, cryptocurrency markets continue to grow more and more liquid as some large institutions look to add it to their portfolios.
  • Fiat currencies move up and down in trading price on well-known economic indicators. Examples include how much of a commodity (like oil or corn) an individual country produces. Cryptocurrencies are driven by network effects, with adoption and platform usage as a few indicators that are used.
  • Fiat currencies have inflation measures that are all independent based on the countries policies, which provides the differential and price fluctuations between the currencies. Similar to cryptocurrencies, they all have a varying issuance schedule with some having a limited supply like Bitcoin, which has a limit of 21 million tokens. This creates vastly different market and trading dynamics, regarding supply and demand.

Three Key Takeaways:

  • Crypto traders and investors typically execute on either a crypto exchange or with a crypto broker.
  • Traders can enter and exit trades similar to the way they do with equities.
  • Similar to forex, cryptocurrencies have varying supply schedule available and some have a finite supply.

See also

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