Crypto exchange FTX is getting into stock trading, should I invest?

Should I invest in the FTX crypto exchange?

Crypto exchanges have exploded onto the scene in recent years, presenting users with new and exciting ways to trade and spend their digital currencies.

In the current market, there are two main types of exchanges: fiat-crypto exchanges, where users can trade one type of fiat currency (e.g., US dollars) for another (e.g., Bitcoin); and crypto-crypto exchanges, where users can trade directly between cryptocurrencies (e.g., Ethereum/Bitcoin) without ever having to cash out into fiat money first.

When considering which type of exchange might be right for you, keep the following in mind...

What is a cryptocurrency exchange?

A cryptocurrency exchange is a digital marketplace where traders can buy and sell virtual currencies to each other.

The most popular exchanges are stock markets which trade real-world assets like stocks and commodities, but there are several more specialized cryptocurrency exchanges including some that deal with currency pairs (ex: BTC/USD), and fiat money (ex: USD/EUR), or even alternative cryptocurrencies.

At their core, all cryptocurrency exchanges provide both information about the current trading activity as well as order books where orders can be placed.

While it may not be possible to execute your order exactly at market price - especially on a decentralized platform like Bitcoin - you can still trade relatively easily because most exchanges keep an order book of current trades.

Why does FTX want to get into stock trading

The company has not given any official statement yet but it's highly likely that they will make a move into trading stocks. They are currently competing with some of the largest cryptocurrency exchanges such as Coinbase and Binance.

With over $200M in daily volume, it’s clear that crypto traders want a reliable place to sell their digital assets, especially given how long many wait for their transactions to be processed by other exchanges.

What is less clear is whether or not FTX will be able to capture enough of these traders looking for alternative options.

If their service is faster, more reliable, and offers lower fees than its competitors; then there’s a good chance we could see them pick up at least some users from other exchanges.

Who are the team members behind the project of FTX

While you could research each individual team member, there’s a quicker way to judge a team’s overall competence: Go to their website and look at how many people are on it. It is generally agreed that teamwork is best accomplished when tasks are divided among five or fewer people in business.

If a project has more than 10 listed team members, you should ask yourself whether those people can really be effective together.

Also, keep an eye out for advisors who claim to have expertise—and make sure that person isn’t just serving as a marketing ploy by lending their name (and useless comments) to another project. You want to see solid industry experience.

You also want to know if someone has worked with companies in your industry before; even if they haven’t done work directly related to your industry, they might still understand how things work within it.

For example, if you were starting a restaurant chain and wanted someone with food-industry experience, someone who had previously run an oil company wouldn't be ideal because he wouldn't understand what makes restaurants tick.

But someone who had worked with McDonald's would probably understand some of what goes into running a restaurant chain well enough that his advice would be helpful.

Can you deposit fiat currency on an exchange if it’s based on blockchain technology?

You can’t deposit fiat currency (i.e., USD, EUR, JPY) on an exchange based on blockchain technology like that of bitcoin or Ethereum. Crypto exchanges aren’t designed to hold fiat currency and they don’t have bank accounts; instead, they hold digital currencies only.

The reason for such a setup is due to a legal requirement known as anti-money laundering (AML).

Any company that provides money services needs to register with a financial regulator and follow their guidelines—in many cases, that includes working with an outside bank for transactions related to fiat currency.

This makes it impossible for crypto exchanges to accept deposits from banks; instead, new users have to purchase digital currencies directly through platforms like Coinbase or Kraken.

How do I make money investing in FTX?

To make money investing on a cryptocurrency exchange, it's important to remember that you aren't investing in an individual coin; instead, you're buying shares of an entire company.

Companies are divided into two classes: common stock and preferred stock. Common stock owners have voting rights and profit from any rise or fall in the company's value.

In contrast, preferred stockholders do not have voting rights (though they can be paid dividends) and are only entitled to profits after common shareholders are paid back first. If there is any cash left over, preferred stockholders will get a portion of that as well.

What are their financials?

A good place to start is to check their financials (i.e., how much money do they have, and how fast are they growing?) The website financial statements should provide you with all that information.

If it doesn’t, you might want to take a closer look at your investment before proceeding. Also consider how stable their cryptocurrency is:

If it’s only being traded on one or two other exchanges, you should probably be wary—newly launched coins can get volatile fast!

It’s also wise to examine what type of coin you're investing in—is it a utility token for a specific platform that will generate revenue through use, or is it a coin designed solely for trading?

How will they reach mass adoption with user-friendly apps and services?

In theory, a fintech company would have to develop a variety of products and services—such as apps and user-friendly online interfaces for trading—that would make it competitive.

This is important because Ethereum (ETH) and bitcoin (BTC) are not user-friendly currencies by design; in fact, part of their value comes from their relative anonymity and lack of need for intermediaries.

However, to reach mass adoption, such companies will likely have to overcome security concerns. If a cryptographic token is hacked or stolen, or if a transaction is irretrievably lost, users will be reticent to continue using that currency.

Is there anything else that needs to be taken into consideration before making my investment decision?

Here are some things you might want to know before making your investment decision. The founder of the FTX, Landon Patterson, has been charged with insider trading.

This is not unheard of among cryptocurrency companies, but it's always important to do your research and be aware of all of a company's business practices.

On that note, keep an eye out for what kind of relationship (if any) your investment will have with Coinbase; by partnering with a company that holds investments from major players in Silicon Valley or San Francisco, you can get a sense of whether or not you'll be able to trust them as an investor should anything happen.

Conclusion

Let’s be honest here: Is anything with crypto in its name a guaranteed moneymaker? Definitely not. Are there any businesses that you should avoid entirely, no matter what they say or what their marketing copy looks like? Of course!

Do your research and pay attention to the hype. But also consider stepping out of your comfort zone and investing in something that could make you some cash—as long as you don’t put all your eggs into one basket.

That way, when one particular investment doesn’t pan out (which is bound to happen), you won’t lose everything!