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What is the difference between stock and crypto trading?

between stock and crypto trading

What is the difference between stock and crypto trading?

Bitxmi experts explained why digital asset trading doesn’t stop for a minute, how their value is formed and what is the reason for the high volatility.

difference between stock and crypto trading

Trading cryptocurrency and trading in stocks, as well as financial markets, may seem identical at first glance. But there are differences in these industries that cannot be ignored, as they make their own adjustments and can affect the success of the trades.

For example, American stock exchanges operate from 13:00 to 21:00 GMT, and Asian markets from 01:00 to 09:00 GMT. While the time frame does not apply to crypto exchanges.

Non-stop trading

The work of cryptocurrency exchanges without breaks and weekends gives wide freedom to the trader. If a trader is engaged in extracting profit from short-term speculation, he can plan his time regardless of location, time zone, chart, and at any time connect to the market to find interesting transactions.

At the same time, it is important to understand what time the main part of crypto traders of a particular region wakes up and to take into account that with the arrival of a large number of new players from a certain region, the price can sharply move in one direction or another. At the same time, the availability of the market 24 hours a day doesn’t mean that it is necessary to monitor cryptocurrency quotes around the clock.

“If you follow the crypto market 24/7, burnout will happen in a matter of weeks. It is necessary to develop a strategy and adhere to it, avoiding any impulsive decisions,” – the experts advise.

High volatility

For the first time in history, private investors have the opportunity to gain access to a promising new asset class, such as cryptocurrencies, before institutional investors, experts say. According to them, cryptocurrencies are the first market where there is practically no institutional capital, and this, in turn, generates volatility.

“Volatility is created by several factors: private investors have a higher rate of return on capital, terms of capital allocation are shorter, and the competence of participants is lower,” – experts explain.

The cryptocurrency space is not yet fully regulated, as it has a lot of fresh mechanics and audiences from around the world. Asset prices are highly susceptible to investor sentiment, as there is no clear set of rules for the market.

Price formation

In digital assets, the price is formed according to the classical model of supply and demand balance, since the amount of the same bitcoins is limited and, by adjusting the number of bitcoins in circulation, the price can be formed. The price in traditional markets is made up of many factors: forecasts of analytical agencies, the financial performance of companies, ratings, government regulation, news background, and other dependencies.

Crypto exchanges are often accused of inflating volumes to get a higher rating and attract more traders. While there are parallel ratings of exchanges and trading volumes, showing very different results, but soon the indices will begin to form the current leaders of the traditional market, and they can be more trusted.

Protection and insurance

Due to the low volatility in traditional markets, investment portfolio insurance is practiced. This financial instrument is beneficial for both insurers and investors, as it helps to protect investments in case of force majeure. This is not practiced in cryptocurrency markets, since movements can be so strong that insurers simply do not have enough funds to cover losses if chaos begins in the market.

The digital currency insurance market is just beginning to emerge. However, derivatives such as options on Bitcoin and Ethereum are already emerging.

If we talk about the DeFi sphere, there already exist insurance projects that take on the function of an insurance agent. That is, they will reimburse funds in the event of unplanned losses, such as hacker attacks, protocol breaks, and loss of assets by a smart contract.

Various quotes

There is no definite set value of an asset on the crypto market at a given time since different quotes are presented on the sites. The traditional market for stocks or currencies, unlike crypto exchanges, is controlled by states and central banks. Crypto exchanges, since they are private companies, set the rules for trading on their platforms themselves.

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Disclaimer: Bitxmi News is a news portal and does not provide any financial advice. Bitxmi's role is to inform the cryptocurrency and blockchain community about what's going on in this space. Please do your own due diligence before making any investment. Bitxmi News won't be responsible for any loss of funds.

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