These types of advantages are especially relevant for retail investors that are greater using Crypto exchanges when compared with traditional exchanges. So traditional exchanges should will move or face the fate of the dinosaurs. It will not be long until starting to see the technology and concepts of crypto exchanges deployed for stock, bond, currency and trading options. This doesn't mean stocks have to become blockchain-based tokens, but instead that tokens enables you to represent stockholdings pretty easily and transacted blockchain style.
1. Fractional purchasing
With crypto exchanges, you can purchase whatever fraction you desire of any asset. Therefore if you wish to invest $523 in bitcoins you're able to do that. There's no need to get a whole bitcoin, you can purchase any fraction from it (e.g. 0.003 BTC). This permits small investors more flexibility plus causes it to be a lot easier to make balanced portfolios with anywhere.
With traditional exchanges, you will need to buy one or more stock and you may obtain only whole numbers. This could 't be a problem for big-time traders but retail investors will find it too lumpy. A Google or Amazon stock is trading for north of $1.000 so that it is a big commitment, to never talk about the $325k Berkshire Hathaway stock.
There exists really no reason at all just for this except the truth that once stock certificates were paper documents that couldn't be slashed into smaller pieces. Nowadays fractional trading is perfectly feasible and is implemented quickly through tokenization of stocks.
2. 24x7 trading
With crypto exchanges, you can get and then sell on 24x7. Of course, exceptionally sites are down or blockchain is very backed-up. This really is convenient for retail investors who are usually working or busy when the market is open. Additionally, it levels the stage when it comes to to be able to answer news like the China ICO crackdown.
With traditional exchanges, you might be restricted to the "market hours". Just like any local physical store vs. Amazon. Of course, institutional traders get all sort of "pre-market" and "post-market" trading which isn't accessible to retail investors.
Again, "market hours" developed a great deal of sense when real citizens were trading the pit. Nowadays there isn't any reason not to allow 24h trading since the "pre and post" markets show. Of course, if many are allowed inside the "pre and post" they've got an unfair advantage on ordinary people and might wish to keep their own rules.
3. Instant Settling
With crypto exchanges, you can purchase and then sell on instantly. The exchange takes want to instantly settle depending on their custody of crypto assets and formalize the modification you'd like the blockchain allows. This is natural, as soon as you hit the button you will find the asset.
With traditional exchanges, the transaction is processed its keep is often a long settling process (currently T+2 or a couple of days from close). Nevertheless there is normally no issue with, it allows High Frequency Traders advantages over us common mortals.
There are 2 problems to permit instant settling with current stock market infrastructure. First, there exists a technology problem. While the blockchain allows instant settling, previous technologies have to go via a convoluted means of checking and rechecking. Second, the multilayered value chain which made sense within the old world takes necessary more hours compared to the direct style of crypto exchanges.
4. Transparent order-books
Crypto order books are totally transparent in several exchanges like Kraken or Poloniex. You can view the depth with the exchange side of each and every market in each with the assets you might be trading. Which means you can understand how the market industry looks as well as what can happen should you convey a large order.
In traditional exchanges, you never see order books as being a retail investor that are proprietary towards the exchange and can be sold being a value added. The matching of order books is usually an important advantage for market makers. This is actually the main purpose with the so-called "dark pools" that investment banks are coming up with.
Transparent order books is a results of competition and consumer expectations on the the whites. But they also need today's technology infrastructure that will manage the increased information volume.
5. Modern and secure interfaces
Crypto interfaces are viewed as from the web and mobile perspective, with security as a key feature. They may be light clients in browsers or smartphones. They could be accessed easily from the unit and use cutting edge technology. This gives simplicity of use, speed and intuitive customer experience.
The standard interfaces We have experienced continue to be full applications in the desktop setting with clunky interfaces and long load time. This probably is related to legacy applications that must be updated but need to be secured and evolved slowly.
Evolving to a new application interface will probably be challenging because it will need agile practices and frameworks which can be second-nature for 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 in the value chain beyond themselves. When you find yourself at an exchange you are directly actually talking to your custodian, your marketplace, your agent, etc... As a result sense within a world by which decentralized trust cuts down on needs for intermediaries. There are many exchange mechanisms such as Shapeshift which are much more direct and just hook you up to another side of the trade.
Traditional exchanges use a big list of players. They have got brokers, that connect to the exchange on your behalf. They have custodians, who take proper care of your assets. This made sense within a world without blockchain in which 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.
In the Blockchain-enabled world there's decentralized trust and thus you don't need numerous actors to make trades secure. This can probably decide to use a progressively leaner value chain model.
7. Variable and transparent fees
Crypto exchanges have transparent and frequently low fees. They may be transparent because being direct there is nowhere to disguise, so it's very obvious is there a exchange charging. Crypto fees range from 0,10-0,30% on the extremely expensive but convenient Coinbase with 1,5% to 4% fees.
Fees in traditional brokers take time and effort to comprehend as they most often have many different components. They are often low for bigger trades, but could typically add up to $1 to $7 per trade which can be pricey for many transactions.
Fee schedules spring from cost and competition. With blockchain type infrastructure cost will appear reduced very significantly. Simultaneously, increased competition will represent a secular trend of shrinking fees for retail investors with ETF and crypto exchange fees to be the defacto standard this agreement others converge.
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Overall, it appears as though a vintage shift from the previous model with all its legacy limitations towards the model that a new technology enables. Due to the already digitized nature of exchanges and stocks, bonds and options expect movements to start fast as well as the switch the signal from be swift. Much more classifieds from the newspaper industry than the slower shift to e-commerce. Regulation can be quite a hurdle, but financial authorities seem open to far better, fair and quick transaction methods. The exchange that moves quicker often will take in the lunch of competitor exchanges. Just like the likes of Schibsted launched digital classifieds across Europe and dominated the category. So traditional exchanges should face a new reality to see how they are likely to place their level to the new defacto standard.
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