3 similarities between Traditional Trading and Crypto Trading
Many people argue that trading in the crypto market and trading on stock exchanges are two very different concepts. However, many say that the investment concepts are virtually the same.
How does the process work?
In the stock exchange market, there are a wide number of company stocks listed on various stock exchanges. People can choose whatever stocks they want to buy and whichever exchange they want to buy from. They pay money in exchange for the company’s share and can also sell them whenever they want. Stocks give them a percentage ownership of the company.
Similarly, there are a number of cryptocurrencies available on the web and a number of crypto-trading platforms that deal in trading of these virtual tokens. People can select cryptocurrencies they want to invest in and the crypto-trading platform they want to use. They can either buy them via fiat currency or other cryptocurrencies. They can also sell these tokens anytime.
Just like in stock exchanges, where prices of shares are not fixed, the value of a cryptocurrency is not fixed as well. They both keep fluctuating all the time.
The price of a share depends upon the value of its company and its demand and supply in the market. A change in any of these components alters its price.
For instance, an increase in demand increases the value of a company’s shares. Since trading in stock exchange occurs on a secondary basis, the price of shares also, keep fluctuating every second. So it is possible that while a person bought a share for $100 on Day 1, the price halves on Day 3 and they incur a loss.
The price of a cryptocurrency is also determined by its demand and supply in the market. And its prices also keep fluctuating every second. However, price fluctuations in cryptocurrency are way more extreme than price fluctuations on stock exchanges.
This makes them more volatile, unpredictable and risky. But, the overall rate of growth of cryptocurrency values is also way more than stocks, which makes them more profitable as well.
Unlike shares, whose supply can be increased anytime, the supply of cryptocurrencies is fixed. However, all tokens on a blockchain are not usually released at the same time. Their supply keeps gradually increasing through mining, like the supply of shares gradually increases.
IPOs and ICOs
While IPOs are a stock exchange phenomenon, the similar trend of ICO has begun in the crypto world.
IPOs or Initial Public Offerings occur when a company goes public and for the first time, it sells its shares to the public. They are usually undertaken by small and young enterprises that want to raise funds and capital to expand. (But they can be done by a large private firm as well.) In IPOs, relevant information has to be issued to carry out the process – the type of security that will be issued, the best offering price, the number of shares that will be issued and the time of the IPO.
ICOs have similar motives as IPOs and they follow similar protocol as well. However, ICOs or Initial Coin Offerings are started by new blockchain start-ups who wish to raise money for their venture. Unlike IPOs, the business is not already set-up and the money is raised not to expand it but start it.
So prior to the ICO, crypto start-ups release details about their venture so that people get an accurate idea of their project. They release a whitepaper on which information about the start-up’s goal and ideas, the blueprint of its project, roadmap to execute the project, advantages of its blockchain network, etc are detailed.
However, the process of an ICO is similar to an IPO. In ICOs, the public buys the start-up’s crypto tokens instead of shares. The ICO price of cryptocurrency and the time of ICO is also mentioned for people to buy them.
Even though the traditional trading market and crypto trading market virtually have the similar traits, but there are some stark differences between them as well.
Firstly, while shares are purely an investment, cryptocurrencies are essentially a form of money. These virtual tokens were built to use for transaction purposes and carry out other functions of money. But they have unintentionally become an investment asset with no real backup value.
Secondly, stock exchanges are more rigid in nature than crypto trading. They require formal accreditations from the buyers, require high fee-charging brokers and are usually traded in countries where the company is incorporated. But the cryptocurrencies is fluid and borderless. Anyone can trade in virtual tokens, crypto trading has low transaction fees and most of the ICOs are usually based abroad.
In fact, in traditional trading, KYC or Know-your-customer is a mandatory process, here information regarding your origin of funds, your total income and assets, etc. are all required. Whereas crypto trading provides the lucrative option of trading anonymously.
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