How Is Crypto Trading Different To Stock Market Trading?
May 6, 2021
Cryptocurrency trading refers to the act of speculating on the price movements of a coin through either a contract for difference (CFD) trading account, or by simply buying and selling the coins through a digital asset exchange. CFD crypto trading enables a person to speculate on cryptocurrency price movements without actually taking ownership of the coins. Whereas, buying crypto “at spot” via an exchange enables a person to purchase and own the actual coins.
Stock market trading refers to the buying and selling of shares in a particular company. If a person owns a stock, then they essentially own a piece of the company. (Some digital stock exchanges offer “derivatives” of these stocks, and not necessarily the stocks themselves).
Similarities between crypto trading and stock market trading
Although crypto trading and stock market trading are different, there are some similarities between the two. In both crypto and stock market trading there is a large amount of speculation involved, especially by uninformed participants. Traders in both the crypto and stock markets make use of similar trading techniques, with a mixture of fundamental and technical analysis often used to trade both markets.
News also plays a major role in both forms or trading, as good or bad news can positively or negatively affect the price of a specific stock or cryptocurrency. News often affects the way traders, in the crypto and stock market, perceive and act on their trading decisions.
Differences between crypto trading and stock market trading
When a person buys a stock or a share of a specific company, they are essentially purchasing a tiny portion of that company. With regards to buying crypto, this is not the case. When a person purchases a specific cryptocurrency, they are simply purchasing a coin. Purchasing that coin does not bring about any form of ownership in, for example, the company that created the coin. The person simply buys a coin to either hold or to use in blockchain-based transactions.
Unlike the stock market, the crypto market NEVER sleeps. The crypto market is active 24/7, all day and all night. This gives traders the opportunity to trade at any time of the day or night. Unfortunately with the volatile nature of the crypto market, you never know what will happen while you sleep.
At the moment, the crypto market does not fall under clear regulatory guidelines making people susceptible to nefarious activity such as insider trading or pump and dump schemes. Unlike cryptocurrencies, stocks have strict insider trading laws and processes that protect outsiders. The punishment for insider trading activity with regards to the stock market is jail time and severe fines in most jurisdictions. With regards to crypto markets, there are still numerous legal loopholes due to the nascency of this industry.
Crypto trading is regarded as a much higher risk than stock market trading, this is mainly due to the volatile nature of cryptocurrencies but also because cryptos aren’t necessarily backed by any revenue or assets, whilst almost all publicly traded stocks are backed by companies that generate revenue and have some form of assets.
So make sure you are trading digital assets that you understand, and be sure to take the necessary precautions before getting involved in these volatile markets!
And remember: Always do your own research.