The world of trading, investing, and cryptocurrency is bigger than ever. With accessibility to markets at all-time highs, there are new participants daily and no shortage of opportunities across the vast landscape of assets to trade or invest in.
From futures, commodities, Forex, stocks, and now cryptocurrencies, the market is ever expanding, growing and attracting more money from more people. So what should you be trading?
Great question! Not all assets are created equal, especially when it comes to safety and security of your money.
Today, we’re going to dive into the some of the precautionary differences between stocks and crypto (cryptocurrency).
Brokers
When it comes to brokers, most of the stock trading brokers, especially the house-hold names, have been around for a while.
The E-Trades, Interactive Brokers, Charles Schwab’s, TD Ameritrades, etc., have been around for decades.
These firms have stood the test of time, and more importantly have protected people’s money in the day to day transactions of their customers.
They are all FDIC and SIPC ensured meaning if things hit the fan or something happens to them, customers are protected (depending on the policy) for some specified amount.
The doubt may come in when speaking about overseas stock brokers that many people rely on to evade the PDT rule or get better access to borrows, but there are legit overseas brokers like Trade Zero, (now also available in the USA as a registered broker/dealer) who we highly recommend, which offer protection via their own private insurers.
As for Crypto currency brokers, there are a plethora of scams and illegitimate “firms” that boast to have security but are not protected in any way.
Crypto has some of the highest hack rates in recent history, as from 2015-2017 over 10% of all money invested in many ICO’s (Initial CoinOffering) were stolen (As reported by Ernst and Young).
Out of all the Crypto currency brokers, Coinbase is the only one I’m aware of that has FDIC insurance for up to $250,000 of cash held in Coinbase wallets.
It’s not a surprise that there are countless stories of people waking up to find their crypto wallets empty.
Many hackers have found ways to attach malicious viruses through exchanges and wallets to consistently draining people’s wallets.
Furthermore, most Crypto currency transaction are not reversible. Meaning wrongs cannot be righted. This is due to the fact that it is decentralized market, so there is no one government or power to change what isn’t right.
Information and Access
Stocks have been around since 1817, so it’s nothing to new to see many news pundits and websites give people the latest and most update information. You can find almost anything you want about a company on websites such as Yahoo Finance, such as market cap, outstanding shares, the amount of insider and institutional ownership, most recent news, what the company actually does, etc.
All this has been built up through the years to give retail a more level playing field in order to compete in the markets. Information like this, along with technical analysis, can provide investors and traders with enough to lay a thesis for a trade or investment.
In the realm of crypto, investors/traders are subject to little or no information about the coin they’re trading or how the orders they are placing are hitting that particular market.
Most are simply trading price action, possibly predicting news events to find an edge, or just gambling that the next ICO takes them to Bora Bora.
In addition, similar to Foreign Exchange, Crypto currency is highly news sensitive and due to it being a 24-hour market there is no telling when news will hit that might sharply go against your position.
Social Media and Hype
It’s easy to fall victim to hype and social media. Over the past few years cryptocurrency has ballooned itself into being one of the most talked about and active markets.
However, with that hype comes a lot of dumb money, scam coins, exchanges getting hacked, investors losing money, and many people will be subject to embarking on a journey into the crypto market without truly knowing what they’re in for.
This is the warning for those who blindly follow others and think there’s such thing as certainty in the market. Do your own due diligence always, and know what you’re getting yourself into.
Day Trading Cryptocurrencies
The crytpocurrency market is very volatile and most exchanges have very little liquidity making it very difficult to day trade, and easier for market makers and pump and dump groups to move the market sharply in one direction for a short period of time, which can incur lots slippage on stop market orders (losing more then you planned when your stop triggers below the market price) and slow order processing when a ton of volume comes into the market and you need to act fast.
For these reasons, I will always prefer to day trade on stable exchanges like the NYSE and NASDAQ exchange where I can trade and execute my system with confidence and security knowing that my money is safe in my brokers hands.
Conclusion
While trading and investing is becoming more accessible, desirable and glorified, the other-side of this opens up the gates of misinformation where people are waiting to take advantage of others.
This blog is designed to safeguard new traders/investors and inform the reality of assets such as crypto currency and the lack of safety that (at this time) exists in it.
In contrast, to promote more protected markets such as the Stock Market, which is governed by the SEC and has rules and regulation to abide by, brokers that protect their customers, and adequate information to make well-informed decisions, it is clear as to why the Stock Market is an overall safer market when compared to cryptocurrency.
Whichever market you choose to trade, invest, or participate in, always trade safe, use stop losses to protect your capital, and best of luck to you!
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