What are tokenised stocks and how do you trade them?

What are shares?

A share is a security. Its holder is entitled to a portion of profits and to vote on the management of the issuing company.

Firms issue shares to raise additional capital for growth. According to the World Bank, equity trading volume in 2020 reached $61trn.

Where can you trade shares?

Shares are traded on major venues such as the New York Stock Exchange and the London Stock Exchange. Most securities are available only on their home exchanges: Apple on America’s Nasdaq, for instance, and China’s SPD Bank on the Shanghai Stock Exchange.

Stock exchanges keep local daytime hours. Trading stops overnight, at weekends and on holidays. Carrying positions to the next day incurs an overnight fee.

To trade shares on an exchange you need a brokerage account with a bank or a platform such as eToro, and to pass KYC. Shares are traded in lots—bundles of 10, 100 or more. You cannot buy or sell less than one lot.

Commissions vary by broker. For example, holders of Tinkoff investment accounts pay 0.3% of the trade value and an overnight fee from 25 roubles per day. They cannot buy fractional shares or trade around the clock. Foreign stocks trade from 10:00 to 01:45, with most liquidity during the main session from 15:30 to 00:00.

What are tokenised stocks?

Tokenised stocks are tokens whose price is pegged to equities. They resemble stablecoins: a custodian buys the underlying shares and issues tokens against them.

The exchange FTX offers trading in tokenised stocks via the regulated German financial firm CM-Equity AG. Through it, FTX users can redeem tokenised stocks for the underlying securities.

Holders of tokenised stocks receive dividends, just like ordinary shareholders. FTX credits them to token-holders’ trading accounts in line with the issuer’s timetable.

FTX users pay up to 0.07% of the trade value for market orders and up to 0.02% for limit orders. They can buy fractional shares and trade 24/7.

Which tokenised stocks can you buy on FTX?

FTX lists tokenised stocks of 47 companies, including:

• technology giants: Google, Apple, Tesla;
• cryptocurrency firms: Coinbase, Grayscale, Square;
• e-commerce service providers: Amazon, Alibaba;
• leaders in their niches: Uber, Pfizer, Airbnb;
• names popular with crypto-enthusiasts: Nvidia, GameStop, Robinhood.

FTX has also launched quarterly futures on all tokenised stocks and added the TSLA/DOGE pair.

Users can vote for new tokenised stock listings on the Vote page. Voting requires holding at least 10 FTT tokens.

How do you trade tokenised stocks on FTX?

First, a trader must complete level-two KYC on FTX: verify identity and address, and state the source of funds. Then they must undergo a similar check with CM-Equity and pass a test on how stock trading works.

Almost all tokenised stocks on FTX trade against the dollar, so traders need to deposit fiat USD or stablecoins: TUSD, USDC, PAX, BUSD and HUSD. The exceptions are the TSLA/BTC and TSLA/DOGE pairs.

The trading process is similar to spot cryptocurrency trading. Traders can use market orders, place limit and stop orders, and buy fractional shares. The minimum order size is one hundredth of a share.

Beyond spot, where traders buy tokens and receive them into their account, FTX also lists stock futures. These allow traders to profit from falling prices and to use leverage.

Trading tokenised stocks on FTX is round-the-clock, but liquidity outside market sessions can drop from tens of thousands of shares to a few hundred, causing slippage even on small orders.

Why buy tokenised stocks if you can buy bitcoin?

Stocks are less volatile than cryptocurrencies, and stock-market trends tend to last longer.

Because stock trading is confined to set sessions, volatility often spikes at the open. During off-hours traders follow the news, form views and then rush into the market in the first minutes after the bell.

Are there drawbacks to trading stocks on FTX?

FTX does not support trading stocks against the most popular stablecoin, USDT. Traders need to hold USD or TUSD, USDC, PAX, BUSD and HUSD on their trading account.

At the time of publication, FTX lists 47 companies. Traditional brokers on average offer about 1,000.

Outside market sessions liquidity can fall by tens or even hundreds of times. Traders should watch the trading schedule to avoid losses from slippage.