What are tokenized shares and how to trade them?

What are shares?

A share is a security. Its owner receives the right to a part of the profit and participation in voting in the management of the issuing company.

Companies issue shares to raise additional funds for business development. According to the World Bank, in 2020 the volume of trading in shares amounted to $61 trillion.

Where can you trade stocks?

Shares are traded on major markets like the New York and London Stock Exchanges. At the same time, most securities can only be bought on local exchanges. For example, Apple shares are traded on the US Nasdaq, and Chinese SPD Bank shares are traded on the Shanghai Stock Exchange.

Stock exchanges operate according to the schedule – in the afternoon local time. Stock trading stops at night, on weekends and during holidays. For transferring a position to the next day, traders pay a commission – overnight.

To trade stocks on the stock exchange, you need to open a brokerage account with a bank or on a special trading platform like eToro, and go through KYC. Shares are traded in lots – packages of 10, 100 or more. A trader cannot buy or sell less than one lot.

The amount of the trading commission depends on the broker. For example, Tinkoff investment account holders pay 0.3% from the amount of the transaction and overnight from 25 rubles per day. They cannot buy shares in parts and trade them around the clock. For example, foreign shares are traded from 10:00 to 01:45, while the most liquidity is available only during the main session from 15:30 to 00:00.

What are tokenized shares?

Tokenized shares are tokens whose price is pegged to securities. They are similar to stablecoins: a custodian firm buys shares and issues tokens secured by them.

Exchange FTX provides trading in tokenized shares with the help of a regulated financial firm CM Equity AG from Germany. Through it, FTX users can exchange tokenized shares for securities.

The owners of tokenized shares receive dividends, just like ordinary shareholders. FTX credits them to the trading accounts of token holders according to the schedule of the issuing company.

FTX users pay up to 0.07% of the transaction amount for the execution of market orders and up to 0.02% for the execution of limit orders. They can buy shares in parts and trade them around the clock.

What Tokenized Stocks Can I Buy on FTX?

Tokenized shares are traded on FTX 47 companies. Among them:

• tech giants: Google, Apple, Tesla;
• cryptocurrency companies: Coinbase, Grayscale, Square;
• e-commerce service providers: Amazon, Alibaba;
• leaders of their own market niche: Uber, Pfizer, Airbnb;
• popular among crypto enthusiasts: Nvidia, GameStop, Robinhood.

In addition, FTX launched quarterly futures contracts on all tokenized stocks and added a TSLA/DOGE trading pair.

Users can vote on the listing of new tokenized shares on the page Vote. To vote, you need to hold at least 10 FTT tokens on your account.

How to trade tokenized shares on FTX?

First, the trader must pass the second level KYC on FTX: confirm the identity and address of residence, indicate the source of income. Then – pass a similar test in CM-Equity and pass a test on understanding how stock trading works.

Almost all tokenized stocks on FTX trade against the dollar, and the trader needs to deposit in fiat dollars or stablecoins: TUSD, USDC, PAX, BUSD, and HUSD. The exception is TSLA/BTC and TSLA/DOGE pairs.

The process of trading in tokenized shares is no different from spot trading in cryptocurrencies. Traders can trade with market orders, place limit and stop orders, and buy shares in installments. The minimum order size is one hundredth of a share.

In addition to the spot market, where traders buy tokens and receive them on deposit, stock futures are traded on FTX. With their help, a trader can capitalize on falling stock prices and trade with leverage.

Trading in tokenized shares on FTX goes around the clock, but outside of market sessions, the liquidity of the order book drops from tens of thousands of shares to several hundred. Because of this, the price slips even with small transactions.

Why buy tokenized shares when you can buy bitcoin?

Stocks are less volatile than cryptocurrencies and stock market trends last longer.

Due to limited trading sessions, morning bursts of volatility occur in the stock market. During off-market hours, traders watch the news, make decisions, and simultaneously enter the market in the first minutes after the opening.

Are there any downsides to trading stocks on FTX?

FTX does not support stock trading against the most popular stablecoin USDT. A trader needs to hold fiat dollars or stablecoins TUSD, USDC, PAX, BUSD and HUSD on the trading account.

At the time of publication of the material, 47 companies are traded on FTX. Traditional brokers on average offer to buy securities of 1000 companies.

Outside of trading sessions, the liquidity of shares falls by tens and hundreds of times. Traders should follow the trading schedule in order not to lose money on slippage.