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Most of these advantages are especially relevant for retail investors that are far better served by Crypto exchanges in comparison to traditional exchanges. So traditional exchanges should will move or face the fate with the dinosaurs. It won’t be long until we start by getting to view the technology and concepts of crypto exchanges deployed for stock, bond, currency and options trading. This doesn’t mean stocks must become blockchain-based tokens, but alternatively that tokens enable you to represent stockholdings pretty easily and transacted blockchain style.

1. Fractional purchasing

With crypto exchanges, you should buy whatever fraction you would like of the asset. This means in order to invest $523 in bitcoins that you can do exactly that. You should not buy a whole bitcoin, you can buy any fraction than it (e.g. 0.003 BTC). This enables small investors more flexibility plus can make it easier to produce balanced portfolios with anywhere.

With traditional exchanges, you have to buy no less than one stock and you’ll obtain only whole numbers. This could not a difficulty for big-time traders but retail investors might find it too lumpy. A Google or Amazon stock is trading for north of $1.000 which makes it a huge commitment, to not speak of the $325k Berkshire Hathaway stock.

There exists really pointless with this except the fact once stock certificates were paper documents that couldn’t be cut into smaller pieces. Nowadays fractional stock trading is perfectly feasible and could be implemented quickly through tokenization of stocks.

2. 24×7 trading

With crypto exchanges, you can purchase and then sell on 24×7. Of course, exceptionally web sites are down or the blockchain is entirely backed-up. This is convenient for retail investors who will be usually working or busy when the information mill open. It also levels the game regarding having the ability to react to news for example the China ICO crackdown.

With traditional exchanges, you’re restricted by the “market hours”. Similar to the local physical store vs. Amazon. Needless to say, institutional traders get all kind of “pre-market” and “post-market” trading that isn’t available to retail investors.

Again, “market hours” developed a great deal of sense when real people were buying and selling the pit. Nowadays there is no reason not to allow 24h trading because the “pre and post” markets show. Naturally, if some are allowed within the “pre and post” they’ve an unfair edge on average folks and might need to keep their own rules.

3. Instant Settling

With crypto exchanges, you can buy then sell instantly. The exchange takes care to instantly settle according to their custody of crypto assets and formalize the alteration as fast as the blockchain allows. This really is natural, once you hit the button you will find the asset.

With traditional exchanges, the transaction is processed its keep is a long settling process (currently T+2 or a couple of days from close). While there is normally not a problem with, it helps High Frequency Traders advantages over us common mortals.

There are 2 problems allowing instant settling with current stock exchange infrastructure. First, there is a technology problem. Whilst the blockchain allows instant settling, previous technologies need to go through a convoluted technique of checking and rechecking. Second, the multilayered value chain which made sense in the yesteryear takes necessary more hours than the direct label of crypto exchanges.

4. Transparent order-books

Crypto order books are totally transparent in lots of exchanges like Kraken or Poloniex. You can see the depth from the purchase and sell side of every market in each with the assets you are trading. This means you can discover how the market industry looks as well as what will happen in case you place a large order.

In traditional exchanges, you don’t see order books as being a retail investor which can be proprietary for the exchange and could be sold being a useful. The matching of order books can be an important advantage for market makers. Here is the main purpose in the so-called “dark pools” that investment banks are coming up with.

Transparent order books will be a results of competition and consumer expectations on the the whites. In addition, they need modern tools infrastructure that could manage the increased information volume.

5. Modern and secure interfaces

Crypto interfaces are thought from the net and mobile perspective, with security being a key feature. They may be light clients in browsers or smartphones. They could be accessed easily from the oral appliance use high tech technology. This gives simplicity of use, speed and intuitive customer experience.

The traditional interfaces I have experienced continue to be full applications in a desktop setting with clunky interfaces and long load time. This probably has to do with legacy applications that need to be updated but must be secured and evolved slowly.

Evolving to a new application interface is going to be challenging because it will need agile practices and frameworks which might be second-nature for brand spanking new entrants but take courage and conviction from existing incumbents.

6. Direct-to-investor

Crypto exchanges deal directly with retail investors and have hardly any other players in the value chain beyond themselves. If you are with an exchange you might be directly actually talking to your custodian, your marketplace, your agent, etc… This may cause sense in the world by which decentralized trust reduces the needs for intermediaries. There are several exchange mechanisms like Shapeshift that are more direct and connect you to another side of the trade.

Traditional exchanges use a long list of players. They have got brokers, that communicate with the exchange for you. They have custodians, taking proper your assets. This made sense within a world without blockchain by which decentralized trust was complex. Now exchanges grapple with all the question of going direct and bypassing their partners, just like consumer goods companies when eCommerce was starting.

Inside a Blockchain-enabled world there is certainly decentralized trust and thus you do not need countless actors to produce trades secure. This will likely probably take to a progressively leaner value chain model.

7. Variable and transparent fees

Crypto exchanges have transparent and typically low fees. They are transparent because being direct there is certainly nowhere to cover, therefore it is very obvious is there a exchange charging. Crypto fees range from 0,10-0,30% to the very expensive but convenient Coinbase with 1,5% to 4% fees.

Fees in traditional brokers are not easy to know while they typically have numerous components. They may be low for bigger trades, but tend to typically total $1 to $7 per trade which can be pricey for many transactions.

Fee schedules are caused by cost and competition. With blockchain type infrastructure cost will be 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 which others converge.

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Overall, it looks like a vintage shift in the previous model with all its legacy limitations for the model that a new technology enables. Because of the already digitized nature of exchanges and stocks, bonds and options we can expect movements to begin fast along with the switch the signal from be swift. A lot more like classifieds within the newspaper industry than the slower shift to e-commerce. Regulation can be a hurdle, but financial authorities seem available to more potent, fair and quick transaction methods. The exchange that moves quicker often will consume the lunch of competitor exchanges. Much like companies like Schibsted launched digital classifieds across Europe and dominated the category. So traditional exchanges should face a fresh reality to see that they are going to take their level to the new gold standard.

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