Trading in crypto has boomed in recent months, as the rapid growth of cryptocurrencies has enticed traders worldwide.
Crypto trading generally revolves around speculating on the movement of crypto prices via a CFD account or buying and selling the underlying coins via an exchange. This means you can buy a certain crypto if you think it will rise in value, or sell if you think it will fall.
Stock trading entails buying and selling shares of individual companies. Stock exchanges basically provide the marketplace to enable the buying and selling of stocks among investors. They are usually regulated by agencies set up by the government.
To some extent, the stock and crypto market function in the same way, as the prices of both are determined by how much people are willing to pay (demand). However, crypto trading differs from traditional stock exchanges in diverse ways. What are these dissimilarities and what should you expect as a trader going into crypto trading?
Capital And Profits
One important factor which distinguishes crypto from stock trading is its required startup capital and profit. A trader wanting to gain access to a stock exchange might have a need for intermediaries such as brokers. Obtaining a broker account, however, may be tough, as such companies demand substantial deposits and also implement many time-consuming procedures.
In contrast, plunging into crypto trading can be accomplished with as little as a fifty dollar worth of cryptocurrency. The volatility of the crypto market provides more opportunities for a trader to earn more profits.
Crypto markets are decentralized and tend to remain free from any economic or political concerns which usually affect the stock markets. Crypto trading relies on deposits known as “margin” in order to gain full exposure to the underlying market. The market moves based on demand and supply. However, profits are calculated according to leverage and this offers equal potential for profit as well as loss.
Easy To Start
Stock trading industries are highly regulated and of course, that comes along with its complications. It might be difficult for a trader going into stock trading to commence trading, as a considerable amount of protocol and paperwork is involved. The trader might experience an extra level of delay and in some cases, extra costs.
On the other hand, crypto trading is considerably easy to start as the crypto market is currently mainly unregulated. Crypto markets are decentralized, meaning they are not backed by a central authority like the government. They run instead, across a network of computers.
Cryptocurrencies exist only as a shared digital record of possessions stored on a blockchain. Quite unlike the stock markets, it does not require any time-consuming paperwork or spending extra costs on signing agreements with a broker.
Anyone Can Create A Blockchain Token
While stock trading is institutionalized and stocks have to be issued out by special groups, anyone can create a cryptocurrency and form their own blockchain ledger.
Before hitting the market, a new stock has to be cleared and audited by government agencies. Specific regulations must be adhered to as well. It’s quite the opposite with crypto. It’s easy enough for a crypto trader to start their own ICO since just about anyone can create a blockchain token.
Availability For Trading
Another big difference between crypto and stock trading is in their trading sessions. While a few stock exchanges provide 24-hour access, majority of these exchanges have limitations as to their availability for trading. In most cases, stock trading allows trade only within a specific timeframe.
The limitation in trading sessions may have a negative impact on planning for the trader, as he may not be able to instantly react to events that occur outside of the timeframe.
Crypto exchanges have a major advantage on this front, as they operate 24/7. Traders can instantly react to any event and if they are fast enough, can make even more profit.
Crypto is unregulated, and can be a target of fraudulent activities
Stock trading comes with heavy regulations and record-keeping, which often makes it difficult for stock shares to be stolen. When you buy a share in stocks, it’s issued out in your name, which serves as an evidence of ownership. Most stocks have to go through annual audits in order to continue trade.
On the other hand, crypto is very prone to fraud due to its decentralized and unregulated nature. Cryptocurrencies are digital currencies, and because of their nature, they are more exposed to hacks and fraudulent practices.
Stock exchange trading doesn’t have a high potential for fraud, and this makes investing in stocks safer.
Trading in stock and crypto both have their pros and cons. Crypto trading, due to its volatility, offers some useful investment opportunities for traders. Though it also comes with a great risk of losses, it may end up as a valuable stand-in for traditional investments.
However, one big issue with crypto trading is that many get into it due to the hype that surrounds it. Without getting a good understanding of what it entails, they may end up getting burned. Nonetheless, understanding the differences between crypto and stocks can help you decide where you want to invest.