It is no longer news that blockchain technology, including the capital markets, is already disrupting the services of the global financial system. Traditionally, buying stocks usually requires either an investment bank, a stockbroker, some bureaucratic process, or often a long list of financial reviews. Unlike regular stocks, tokenized stocks (traded on the blockchain) do not require any paperwork or the need for a stockbroker as a middleman, which removes them from the stockbroker’s fees.
Tokenized stocks are derivative assets. This simply means that the price of a tokenized stock is determined by the price of the company’s stock.
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Digital stocks, like digital assets, are known as tokenized stocks. The tokenized stock uses blockchain technology and can be traded on cryptocurrency exchanges such as FTX.
Just recently, the leader of a fast-growing crypto exchange, Sam Bankman-Fried, described tokenization as a growing trend. “Access to stock markets is bumpy from country to country,” he says. “You don’t see 24/7 access to most stock markets, but FTX’s markets are always open.”
Crypto exchanges also allow tokenized shareholders to receive dividends. Trading tokenized stocks is similar to trading cryptocurrencies, but there are some conditions that a user must meet.
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Although a number of crypto exchanges that offer tokenized stocks appear to be relatively small, recent data shows that the narrative is changing as a growing number of leading crypto exchanges offer such services. The disruptive product has made it easy for investors in Africa in particular who want to increase their exposure to the US stock markets.
For regulatory reasons, crypto exchanges such as FTX only allow users who have passed their Level 2 KYC to use the spot market via the blockchain, and secondly, the investor may not be a member of a restricted location or country. Once the client has reached their second KYC level, the person can start trading these assets.
Trading fees, API calls and GUI instructions are the same as when trading cryptocurrency. This service is available around the clock on the platform.
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It’s important to know that the price of a tokenized stock may not necessarily match the actual stock due to a number of factors. Prices can be a bit higher or lower depending on the crypto exchange, although this price parity is relatively low.
Still, tokenized stocks offer users a smooth payment experience, low transfer and transaction fees, and improved risk management as a retail investor can afford unrestricted trading in small quantities, as crypto exchanges allow users to purchase fractions of shares like expensive stocks like Google and Tesla .
After all, these revolutionary financial instruments like cryptocurrencies are traded around the clock although, on the other hand, they cannot be liquidated when the traditional market is closed.