You may often have heard the terms ‘stock market’ and ‘cryptocurrency’ used interchangeably, and while they definitely fall under the same category in terms of trading and forex, there are definite differences between the two that are useful to consider when at the very beginning of your trading career.
Particularly important if you are starting out as a beginner, knowing the difference between what crypto is and its purpose vs. the stock market and its purpose will help you narrow down the sort of trading that you want to get into. Even within trading, there are small niches and differences that may appeal differently to everyone. So whether you decide to use someone like OANDA as your broker of choice or prefer to get to trading directly on the stock market, knowing the differences will allow you to make more informed decisions.
What is the Stock Market?
To start off, it’s worth looking at what the stock market is and what its purpose is. Generally speaking, the stock market is just as the name suggests! It is a common place for buyers and sellers to meet (virtually) and make transactions happen. The main transaction that occurs is of shares, or parts of shares of public companies, which are then bought and sold.
Having a common venue means that not only is it accessible for everyone, but it is also a place that is regulated to ensure efficient dealings happen at fair prices. There are primary and secondary markets that operate, and investors will buy shares within a company with the incentive of company growth, giving them greater profit in the future.
What are Cryptocurrencies?
You may have heard this term being used more and more frequently in recent years, but essentially, cryptocurrencies are a form of digital currency with its biggest security feature coming in the form of cryptography, making it next to impossible to produce counterfeits.
Because they function based on blockchain technology, it means they are technically decentralized and outside the authority of any sort of central establishments or governments. Although there is very limited use of cryptocurrencies within traditional retail transactions, the popularity of things like Bitcoin has meant that it has shot to becoming a very popular tool within trading that everyone wants to try and get a piece of.
Differences Between Cryptocurrencies and the Stock Market
Now that we’ve looked at the very basic functions of the two things, it’s time to have a look at some of the key differences between the two so that you’re not only well-informed but can make trading decisions accordingly.
Hours of Trading
One of the most noticeable differences between the trading of cryptocurrencies vs. trading on the stock market is the hours in which they both operate and are active.
Stock market trading hours are typically during the business hours of the home country for a typical week, from Monday through Friday, and closed on occasions such as holidays and weekends.
In contrast, trading for cryptocurrencies works a bit differently. This runs 24/7 regardless of country, time, and even holiday, so in one sense, it never really switches off.
The Volatility of Cryptocurrencies
Leading on from the hours of trading, the fact that cryptocurrencies operate around the clock also has an impact on how volatile it is because it is more likely to succumb to drastic changes which can happen in the span of a few hours. Cryptocurrencies have been known to lose all value overnight in the past, but have also created huge profits in the same amount of time as well, so the change can be quite sudden and without warning.
That’s not to say that the stock market cannot go up and down in value; it certainly can. However, the rate at which it might do so is a little slower than cryptocurrencies. The pattern and progress of the stock market are sometimes monitored over the span of decades, meaning that investors can spend a bit more time before making a decision as to whether they wish to buy/sell a particular stock share or not.
The Difference in Ownership
Another common difference between the two is the difference in ownership of the two trading assets. For the stock market, as has been done for the last few decades, if not more, a brokerage account is needed to handle and process transactions, as well as verify your identity. Personal information such as your signature, address, and even social security number can be used to protect your account.
Whilst crypto is definitely a more anonymous exchange, there is less security offered than the stock market. All of your cryptocurrencies are stored in what is known as a ‘crypto wallet,’ which is completely virtual in nature. The closest it may come to anything physical is the fact that information can be held on a USB drive.
How Liquid Each Trading Asset Is
When the liquidity of something is mentioned in the world of trading, it usually refers to how well the particular trading asset can be sold. Is it in demand? Are investors and buyers interested in a particular stock share, or on the other hand, a particular cryptocurrency at a given time?
In the stock market, stocks are considered to be quite highly liquid thanks to how many traders are active on the market during the working day.
On the other hand, the liquidity of cryptocurrencies has a lot more variety and is of a more temperamental nature. The liquidity of cryptocurrencies isn’t the same across the board and can vary from currency to currency. Overall, Bitcoin is considered to be one of the most liquid forms of cryptocurrencies, and that is thanks to the fact that there is a higher volume of trade surrounding it. There are many buyers and sellers, and we mentioned its popularity to you earlier as well.