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Asset class differencesLevel: Beginner
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Samuel McCulloch
Head of Adara Academy & Trading division. Professional crypto trader with experience in capital markets, options and futures trading.

In the previous video, we explained the basics of cryptocurrency trading. Today, we’ll talk about what makes crypto different from stocks, forex, and commodities from a trader’s perspective.

Let’s start with trading volume. Size-wise, cryptocurrency markets are on par with the world’s biggest stock exchanges. Here are some numbers to explain what we mean.

The London Stock Exchange processes transactions worth a total $7 billion each day. South Korea’s stock exchange, the Korea Exchange, does around $9 billion. For comparison, crypto markets process around $10 billion each day. Some stock markets are bigger than the crypto market; the NYSE’s trading volume is about $50 billion. All in all, though, crypto traders work with the same kind of volume that stock traders do.

Forex markets are vastly bigger than either stocks or crypto. It’s estimated that over 5 trillion dollars are traded in forex markets on an everyday basis. This is an absolutely huge amount of money for sure - but there’s a twist. Most of the people and organizations trading crypto are private individuals and funds. With forex, on the other hand, a lot of orders come from national and international banks, pension funds, corporations, and other institutional entities.

This means that while a lot of money is exchanged, there’s also a lot of competition and a lot of money involved. As a result, forex margin requirements are very low. Many traders have to borrow money in a process called margin trading to increase the total amount of funds they effectively trade with. This is different from crypto markets, wherein you can turn $100 into $1,000 if you know what you’re doing and without borrowing money.

Last but not least, there are commodity markets. It’s hard to gauge the exact size of these because there are so many commodities. Having said that, the total number of public commodity contracts numbers well over 14.3 million. Assets under management in commodity products have a market cap of over $400 billion. This means that the market itself is likely to be in the same league as the forex market, especially given that margins in both spaces are low.

To summarize, forex is a vast market with low margins. Commodities are similar. Stocks often offer higher margins, but with a few caveats we’re about to cover. Crypto assets are a relatively small market with high margins, little competition, and enough volume to dwarf most of the world’s stock exchanges.

Of course, size isn’t everything. How do all these markets differ when you take trading volume out of the picture?

For starters, there’s timing. If you’re a stock trader working with the NYSE, you can only make trades between 9:30 AM EST and 4:00 PM EST. This isn’t great, especially if you’re outside NY. Most other exchanges are the same in the sense that you can only trade a few hours a day.

Forex and commodity markets are different. They operate 24/7, with platforms like CME Globex for commodities and a variety of communication networks for forex. The same is true of crypto. This can be very convenient, especially if you live in a time zone with no major stock exchanges. The ability to trade when you want, when you want is one of the major reasons that many stock traders have made the switch to coins and tokens.

Next, let’s circle back to profit margins. With forex and commodities, these tend to be low. That’s because the competition is extremely high, with sophisticated, knowledgeable traders and efficient systems. As we mentioned previously, making a consistent profit with these asset classes often requires borrowing money through margin trading. This can be a negative, especially for new traders who’ve never traded this way before.

Making money with stocks is a little easier. The competition is still there, but barriers to entry and time limits lock a lot of players out

The highest profit margins, though, are in the crypto niche. This is for two main reasons. First, crypto asset prices are highly volatile, meaning prices move up and down faster and further than other assets. Second, most institutional investors don’t trade crypto yet, meaning competition is relatively low.

Now, profitability is usually a derivative of volatility. The more prices go up an down, the more opportunities there are to make money. This makes crypto tokens, which are highly volatile, the most profitable asset class. We may never see a repeat of what happened in the last months of 2017, but profit margins still tend to be high for traders in this niche.

Last but not least, there are barriers to entry. As far as crypto is concerned, virtually anyone with money can buy coins and tokens easily online or in person. The barrier to entry is very low for crypto assets.

Forex is relatively easy to trade as well. Registering with a trading platform is easy, and although the niche is rife with mismanagement and fraud, finding a legit exchange isn’t too hard.

Commodities and stocks are significantly harder to get into as a trader. With stocks, you either need to register with a stock exchange or hire a licensed broker to process your orders. This can be costly and time-consuming, which is why many stock traders work for large companies. Finding the resources to trade stocks as a private individual can be difficult.

Now let’s summarize how crypto compares to other classes.

In terms of size, crypto is on par with large stock exchanges but significantly smaller than the forex and commodities markets.

In terms of profit margins, crypto is superior to any other common asset class because of its volatility.

In terms of barriers to entry, crypto is very easy to get into, especially when compared to commodities and stocks.

As far as operating hours are concerned, crypto is 24/7 - just like forex and commodities.

And there you have it. This is how crypto compares to forex, commodities, and stocks.

In our next lesson, we’ll cover common cryptocurrency pairs you need to know about. See you there, and thanks for watching.