Everyone is going into cryptocurrency because let us be honest: we want to be financially independent and successful. But there are still a lot of questions related to crypto trading that are doing the rounds globally. One of the most confusing questions is whether or not one can trade crypto like they trade stocks.
The answer will probably require some explanation and a thorough comparison between crypto and stocks, so get ready. This article will let you know about how you can trade crypto and whether you need additional information out of your stock trading experience.
Understand the Difference
It is important to understand the differences before we jump to the similarities of treating practices between cryptocurrencies and stocks. The basic difference is not in digital media but in how cryptocurrencies are supposed to function. As everyone knows, there is not a single type of cryptocurrency, so depending on your choice of trade, the practice will be different depending on the type of cryptocurrency you are trading.
The primary difference between stocks and crypto is that stocks function as securities that fall under the regulation of the Securities and Exchange Commission. On the other hand, Cryptocurrencies are not the likely currency to function as securities. While some cryptocurrencies might allow a similar function as stocks, it is not as standard for all of the options in the crypto market.
Another significant difference is that crypto trading can happen at any time and is not bound by a strict window of trading hours. The trading is also more flexible with cryptocurrencies because it is not bound by time and can be traded without the jurisdiction of a larger authority. Direct trading of digital assets is possible in cryptocurrencies which is not feasible with stocks.
The Faster Choice
In today’s world, the primary concern is saving time and increasing efficiency, trading cryptocurrency fits the bill. As compared to stock trading, cryptocurrency allows for faster peer-to-peer trade, which is not bounded by any time limit. This type of trade also owes itself to the easy ownership of cryptocurrencies which are far easier to own than stocks.
Stock trade will require a lot of paperwork for the headache to exchange hands, while crypto assets allow for maximum flexibility because the coin remains with the owner. The fact that most of the cryptocurrencies are decentralized also works as a significant favor towards cryptocurrency exchange. You can know more at thenationonlineng.net.
The technological innovation in relation to crypto is making it easy for people to own crypto assets, trade them and process secure exchanges in virtually no time as compared to stock trading. If you are concerned with the time, you can make a fairer comparison between the trading based on the functionality. However, we can surely say that the ease of trade helps make the most of the experience with crypto.
The Howey test
The Howey test is the easiest way to determine the functionality of a cryptocurrency as security. If you are wondering whether or not cryptocurrencies can be traded like stocks, the Howey test is the easiest way to determine whether that will be feasible for a particular user or not. The test looks into the details of a crypto asset and checks it against different categories to determine whether it is a security or not.
An important point to mention here is that this test can be applied to any asset, even if it is not digital. The categories against which the asset is checked include:
- It is a financial investment
- One expects to profit from this financial investment
- Financial investment is a common enterprise
- Profit will come from a third party
The defining feature in the stress is that if any of the categories apply to a particular as it will be classified as a security and will be traded as such. If one is wondering whether or not they can trade crypto-like stocks, putting the asset against the Howey test is the best approach.
Know the Similarities
Now that we have dealt with the differences, it is important to know the similarities between stock and crypto trading. The primary similarity is that everything is happening via an application or through a website which helps a person manage the brokerage account or trading details.
The general user interface and experience are highly similar across the stock trading and crypto trading platforms. Even though we have already established that crypto trading is the faster of the two, stocks are equally easy to exchange online. There are different types of retail trading that you can engage in with both stocks and crypto. These are:
- A market order allows a person to sell the asset almost immediately. A market order does not guarantee a base price because the focus is to sell the asset.
- A limit order is supposed to focus on the price of the asset. Essentially, with the buy limit order, the asset can be sold at a particular threshold or lower. A sell limit order is when the threshold of the price or higher is preferred.
- A stop order is executed to control the losses experienced in the market. The idea behind stop order is to automatically move to sell once a specific pre-decided price range is reached. The threshold price is called the stock price, and when it is reached, the stop order functions as a market order.
While these types of orders are more familiar with stock trading, decentralized platforms like cryptocurrencies are also offering them. As the trading system gains momentum, there is a higher chance of getting to trade crypto-like stock.
You will need to know both the differences and similarities between the two trading practices to understand how crypto and stocks exchange hands. Knowing the benefits you will get at both markets is important for your financial portfolio, so make sure you are making an educated decision with your investments and trading practices.