The debate on Digital Stocks vs Traditional Stocks continues to drive conversations in the investment circles with no clear winner as to which is better. While the fundamentals involved are similar, there are major differences between digital stocks and traditional stocks. By and large, traditional stocks are composed of a class of mature assets whose change in value determines the state of the overall economy across the globe.
In traditional stocks, people gauge performance through national benchmarks and indices of different kinds. By observing the direction the benchmarks and indices are moving, it is easy for investors to decide where to put their money.
By and large, the stock market involves selling company shares through national securities exchanges. When a company is floating shares to the market for the first time, it has to issue an initial public offering (IPO). Even though the company sets an IPO price, the actual value of the stocks could be higher or lower depending on the company’s management, sentiment towards it, earnings outlook, and debt profile.
It is a requirement for each and every company trading on major exchanges to publish annual audited financial statements. Thus, members of the public get to know what's happening in the company and in the process avoids being defrauded.
Digital stocks work on a similar principle, even though they are different from traditional stocks. Projects and companies can raise funds or launch cryptocurrencies through an initial coin offering (ICO). This is the process through which the public gets to buy into digital stocks.
To prepare for an ICO, project or company managers have to prepare a 'white paper’, market the ICO and launch it for a period of up to 4 weeks. Since the digital stock markets operate under no regulatory framework, the company can spend the money raised in any way it wishes. We take a detailed look at each of these investment options.
Traditional Stocks and Investment
Traditional stocks are usually sold on the stock exchange/stocks market. When investors buy stocks, their intention is to hold onto them until their value appreciates substantially enough for them to sell at a profit. For as long as they hold stocks, investors will earn dividends and even get additional shares in terms of rights issues.
The stock exchange is the platform where buyers, sellers, and brokers come together to trade in approved stocks. After buying stocks, buyers can hold onto them for as long as they want. It all depends on their personal goals. Thus, they can trade their stocks frequently or hold them for a long time.
Every investor expects stock prices to go up so that he or she can sell it at a higher price. Thus, it is possible to make $5 dollars in profit if you sell a stock you bought at $15 for $20.
On the stock market, shares are listed on the basis of industry and category. Unlike decades ago when traditional stocks were traded through paper certificates, everything nowadays happens via digital ledgers. To open a stock trading account, all you need is a computer and internet connection. In just a couple of minutes, your trading account will be fully operational. Once you have a stock trading account, the next step is to choose a stockbroker. The work of the stockbroker is to execute trades on your behalf.
Before they are enlisted on the stock exchange, companies are thoroughly verified and vetted. The purpose is to protect investors from possible fraud. Thus, people can invest in traditional stocks with full confidence that their money is protected.
The good thing with traditional stocks is that they are trustworthy, given their strict regulation, systems, trading platforms, and non-interference from the government. There’s no doubt investors' money is protected.
Digital Stocks, Market, and Exchanges
Digital stocks exist in the form of cryptocurrencies or tokens, which represent an existing concept or technology. When held for a long time, digital stocks are viable investments that could result in wealth creation. Alternatively, traders can make money by selling their assets within the shortest time possible.
Unlike traditional stocks which represent outright investments, digital stocks represent a store of value. Thus, selling appreciated digital stocks could earn you a good profit. For instance, the appreciation rates at the end of 2016 were up 10,000 percent leading to huge returns on investment.
Digital stocks operate outside government control or regulation. They are listed and traded on privately-owned exchanges with no government regulation. Anyone with an idea can launch his or her tokens and put them on the market within days. This explains why the digital stocks market is highly volatile.
Depending on developer and community sentiments, the value of digital stocks is likely to appreciate or depreciate. That’s why it’s important for developers to promote their projects to have as many investors as possible on board. Wide adoption of digital stocks is a sure ticket to decent returns on investment.
However, digital stocks are very volatile in nature. A small change in their prices can result in huge losses. They are, thus, fraught with some of the highest risks. It gets worse with the realization that digital stocks don’t operate under any regulatory and oversight framework.
Digital Stocks vs Traditional Stocks - Difference and Impact on Global Economy
While trading in traditional stocks involves the work of brokers, digital stocks are sold by traders directly to the investors. Trades in digital currencies are done by anyone on centralized or decentralized exchanges.
Digital stocks are created on the basis of blockchain technology, which is decentralized, immutable, and secure. That’s unlike the stock exchange where different stocks are sold.
One thing you need to know about digital stocks is that they are universal in nature. People can trade digital stocks from virtually anywhere across the globe. With a computer and internet connection, anyone can trade in digital stocks.
That cannot be said about traditional stocks which are sold within the confines of a particular country. It becomes difficult for foreigners to trade in stocks in another jurisdiction. Not so for digital Stocks which can be bought by anyone from anywhere.
It is for that reason that digital stocks are poised to greatly impact the global economy. Not only do they provide universal investment opportunities, but their continued popularity make them the go-to investment of the future.
No doubt digital stocks and traditional stocks provide good investment options. Digital stocks have high risk, which is the reason the returns on investment is also high. However, you don’t have to choose between one and the other. Balancing how much you invest in each of these options can be a good way of balancing your portfolio. Think about it!