Post Menu and Details.
Words: 1036
Reading time: ~4 minutes
The new generation of mobile investing and online trading has made it incredibly easy for people to invest in the assets they want. As a result, an increasing number of investors have now started to buy and sell both crypto and stocks to improve their financing efforts.
Even though the process of buying stocks or cryptocurrencies may be similar, there are fundamental differences one must be aware of.
Let’s start with the similarities.
Stocks Vs Crypto: The Similarities
Nowadays, several investors log on to a brokerage account, digital exchange, or mobile application to interact with their preferred financial market in Australia. Most cryptocurrency and stock-trading platforms have an identical user experience, trading options, and liquidity features. Today, it is easier to buy and sell stocks than ever before, and cryptocurrency platforms have also replicated these mechanisms.
A retail trading platform usually gives investors access to similar trading order options like:
- A market order
- A stop-loss order
- A limit order
Market Order
A market order is set when an investor wants to buy an asset or currency at a given price. This can guarantee that the share or currency you want is bought at the exact price you want. That said, while the market can guarantee that the order will be executed, it can’t necessarily guarantee the price (there can be a difference of a few cents).
Stop-Loss Order
A stop-loss order is placed when an investor wants to eliminate the number of losses they can incur. It’s an order that sells a stock when it reaches a certain price to mitigate the loss. Here’s an example:
Let’s consider that you bought Stock A for a price of $10. Like every other investor, you’d want the stock’s price to increase so that you can enjoy the profits. But the one thing that an investor does not want is the stock to lose value. In a case like this, you can save yourself from excessive losses by setting a stop-loss order for $8.75. This means, if Stock A reaches $8.75, your holdings will be sold so that you don’t have to bear a massive loss.
How does this help?
Trading markets (stock of crypto) are volatile. The cryptocurrency market is particularly notorious for its high volatility. Currencies can easily lose half of their value in a single day, and in instances like this, a stop loss can protect your precious savings.
Limit Order
A limit is a lot similar to a stop loss. While a stop loss can help you sell a stock or a currency at a designated price, a limit order can help you buy and sell a stock or a currency at a price of your choosing. This can be useful if you’re trying to buy a currency or a stock at a good price. Consider this example:
Stock B has a true value of $10, which is its current value. To make a profit, you want to buy Stock B at a price lower than its actual value so you can sell it at a higher price and make a profit. So, in this case, you’re going to place a limit order for $7. Once stock Breaches this price, the platform or application you’re using will instantly buy these stocks.
Most cryptocurrency exchanges offer basic orders, but only centralized exchanges have the full range. However, as cryptocurrency continues to gain traction, these options will be added to every exchange. But even though both of these investment options have streamlined personal finance and asset accumulation in general, some engaging differences set crypto and stock apart.
Stock Vs. Crypto: The Differences
Market Access
For almost every investor in the stock market, trading has a strict period. In Australia, the trading hours for the stock market are 10 AM to 4 PM. On the other hand, crypto markets never take a break. Since the market is operational throughout the day, there’s a higher chance of you hitting a favorable position.
The obvious con is that you may have to stay on your toes throughout the day.
Is it worth it?
The answer depends on your personal finance goals.
If you’re convinced to want a car after reading a detailed overview of the Toyota Rav4, you may prefer the high volatility of the crypto market.
Transparency
A company offering partial ownership to the public is mandated by law to share vital information with the stock market. This can be in annual reports, quarterly financial reports, shareholder meetings, and other ways of updating shareholders.
On the other hand, cryptocurrencies are under no such obligation. The financial service in Australia has existed longer than the cryptocurrencies available in the market today. Since crypto projects have limited transparency, industry analysts and investors have difficulty assessing how a currency performs.
That said, some currencies do try to be transparent by giving community updates.
Ownership
This is perhaps the most important difference between the two. When you buy stock for a company, you own a certain portion of the company that has issued the stock. This is also why certain companies share 49% of their equity in the stock market (even if a certain shareholder holds all the stock, they still won’t own the company entirely).
Companies often give major shareholders entitlements like dividends (a portion of the company’s profits) or voting rights. On the other hand, cryptocurrencies represent something entirely different. Several digital assets are supposed to be digital tokens that are used in an ecosystem enabled by cryptocurrency.
On the other hand, several other currencies don’t have to demonstrate use cases and are intended to store value like Bitcoin. You can think of them as digital commodities like gold or any other precious material that you can own. Moreover, even if you buy Bitcoin, you don’t own a certain percentage in the company.
Even though certain tokens act like stocks, these tokens can be listed in the stock market in many jurisdictions.
The Way Forward: AUD or BTC?
Even though stocks and cryptocurrencies present different investment opportunities, both of them are combining to pave the way for a new digital economy. Some projects are working on bringing traditional stocks to the blockchain world with the help of synthetic assets. Moreover, investors will soon trade their favorite stocks in a decentralized market because of oracles powered by blockchain.
So – stock or crypto? Well, in due time, we’re not going to have the luxury of choice.
Thank you for reading!