Several Benefits Of Crypto Exchanges Over Traditional Stock Exchanges
A large number of advantages are especially relevant for retail investors that happen to be superior using Crypto exchanges in comparison to traditional exchanges. So traditional exchanges should start to move or face the fate in the dinosaurs. Clothing long until we start by getting to view the technology and concepts of crypto exchanges deployed for stock, bond, currency and options trading. This does not imply stocks need to become blockchain-based tokens, but rather that tokens enables you to represent stockholdings pretty easily and transacted blockchain style.
1. Fractional purchasing
With crypto exchanges, you can buy whatever fraction you desire from a asset. What this means is if you need to invest $523 in bitcoins that can be done that. You should not get a whole bitcoin, you can buy any fraction of it (e.g. 0.003 BTC). This enables small investors more flexibility and also makes it much easier to make balanced portfolios with any amount.
With traditional exchanges, you must buy one or more stock and you may obtain only whole numbers. This might stop an issue 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, to not speak of the $325k Berkshire Hathaway stock.
There's really no reason because of this except the fact 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 should buy and then sell 24x7. Of course, exceptionally sites are down or even the blockchain is totally backed-up. This is convenient for retail investors that are usually working or busy if the market is open. In addition, it levels the playing field regarding being able to reply to news for example the China ICO crackdown.
With traditional exchanges, you're tied to the "market hours". Much like your local physical store vs. Amazon. Obviously, institutional traders get all kind of "pre-market" and "post-market" trading which isn't open to retail investors.
Again, "market hours" designed a large amount of sense when real people were trading in the pit. Nowadays there is no reason never to allow 24h trading as the "pre and post" markets show. Obviously, if many are allowed within the "pre and post" they've got an unfair edge on everyone else and might want to maintain their own rules.
3. Instant Settling
With crypto exchanges, you can buy and then sell on instantly. The exchange takes choose to instantly settle determined by their custody of crypto assets and formalize the progres you'd like the blockchain allows. This really is natural, whenever you hit the button you will find the asset.
With traditional exchanges, your order is processed its keep is often a long settling process (currently T+2 or a couple of days from close). While there is normally not an issue with, it allows High Frequency Traders advantages over us common mortals.
There's 2 problems allowing instant settling with current stock market infrastructure. First, you will find there's technology problem. While the blockchain allows instant settling, previous technologies have to go via a convoluted technique of checking and rechecking. Second, the multilayered value chain which made sense inside the " old world " takes necessary more hours as opposed to direct label of crypto exchanges.
4. Transparent order-books
Crypto order books are totally transparent in lots of exchanges like Kraken or Poloniex. You can view the depth from the purchase and sell side of each market in every of the assets you are trading. And that means you can discover how the marketplace looks and just what will happen if you convey a large order.
In traditional exchanges, that you do not see order books as being a retail investor which are proprietary on the exchange and could be sold being a useful. The matching of order books can be an important advantage for market makers. This can be the main objective in the so-called "dark pools" that investment banks have created.
Transparent order books is a consequence of competition and consumer expectations around the one for reds. In addition they need better technology infrastructure that will cope with the improved information volume.
5. Modern and secure interfaces
Crypto interfaces are believed on the internet and mobile perspective, with security like a key feature. These are light clients in browsers or smartphones. They may be accessed easily from any unit and use cutting edge technology. This enables convenience, speed and intuitive customer experience.
The traditional interfaces I've experienced are nevertheless full applications in the desktop setting with clunky interfaces and long loading time. This probably is related to legacy applications that should be updated but need to be secured and evolved slowly.
Evolving completely to another application interface is going to be challenging as it requires agile practices and frameworks which might be second-nature for brand new entrants but take courage and conviction from existing incumbents.
6. Direct-to-investor
Crypto exchanges deal directly with retail investors and still have few other players inside the value chain beyond themselves. If you are at an exchange you are directly speaking with your custodian, your marketplace, your agent, etc... This makes sense inside a world where decentralized trust reduces the needs for intermediaries. There are a few exchange mechanisms like Shapeshift which might be a lot more direct and merely connect you to the other side from the trade.
Traditional exchanges possess a long list of players. They've brokers, that communicate with the exchange in your stead. They have got custodians, taking proper your assets. This made sense inside a world without blockchain where 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.
Inside a Blockchain-enabled world there is certainly decentralized trust and therefore it is not necessary countless actors to generate trades secure. This will likely probably choose to use a progressively leaner value chain model.
7. Variable and transparent fees
Crypto exchanges have transparent and typically low fees. These are transparent because being direct there's nowhere to cover, so it is very obvious what is the exchange charging. Crypto fees range 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 know while they typically have many different components. They may be low for larger trades, but tend to typically amount to $1 to $7 per trade that may be pricey for a few transactions.
Fee schedules are caused by cost and competition. With blockchain type infrastructure cost will be reduced 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 being the gold standard that others converge.
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Overall, it appears as though a classic shift from your previous model with all its legacy limitations on the model which a new technology enables. In the already digitized nature of exchanges and stocks, bonds and options don't be surprised movements to start fast along with the switch to be swift. More like classifieds within the newspaper industry as opposed to slower shift to e-commerce. Regulation can be a hurdle, but financial authorities seem offered to more effective, fair and quick transaction methods. The exchange that moves quicker often will consume the lunch of competitor exchanges. Much like the likes of Schibsted launched digital classifieds across Europe and dominated the course. So traditional exchanges should face a brand new reality and discover that they will certainly placed their level to the new gold standard.
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