April 07, 2021 |James Messi
At Beaxy Exchange, our primary focus is bridging the gaps between cryptocurrency and legacy finance. That means that we are always striving to blend the decades of innovation from legacy finance into the ethos of cryptocurrency which promotes transparency, accessibility, and fairness for all market participants.
Like any industry, legacy financial products and services have their fair share of drawbacks. Behavior that negatively impacts everyday market participants generally stems from a lack of transparency.
In this article, we dive into the common practices of both legacy finance and cryptocurrency companies that are harmful to retail customers and explain what Beaxy has done to ensure that its clients do not face these risks.
What They Don’t Want You to Know
Actions that are detrimental to retail clients of large financial firms include selling client orders to dark pools or market makers to be front-run, wash trading, order book spoofing, and more. These range from arguably unethical, in the case of selling client orders, to potentially illegal, in the case of wash trading. The common theme among these? They all happen behind the scenes, where they go unnoticed by the retail clients that they affect the most.
Selling Your Orders
Robinhood is a commission-free trading platform for stocks and exchange-traded funds. The popular mobile application has consistently made headlines in 2021 as a result of their handling of client positions during the Gamestop stock craze that peaked toward the end of January. Robinhood was primarily criticized for disabling purchases of GME stock at the height of the rally. A move that many believe caused Gamestop’s stock price to plummet from $325 down to $50 per share.
While the decision to disable buys on GME drew most of the attention from the rally, Robinhood’s retail clientele began to take a closer look at how the firm generates revenue. Facts that had been hidden in plain sight began to reveal that Robinhood may not be as “commission-free” as they seem.
It does make you think. If they don’t charge a fee for trading commissions, then how do they make money? The answer is pretty straightforward. Robinhood makes money by selling their client’s order flow to market makers. This is a common practice used by online stock brokerages. Instead of appearing to charge a fee for trading, the cost to the trader ends up being hidden in a higher share price. For example, Robinhood receives a fixed rate from market makers in exchange for their customer’s orders. Market makers are willing to pay for these orders because it allows them to profit from the spread they create between the limit price on the retail order and the bid or ask on the other side of the order. This is problematic for retail traders because it raises the price they pay for each share and creates a web of conflicts of interest.
Another common practice from legacy finance that is also prevalent in cryptocurrency markets and is harmful to retail traders and investors is wash trading. Wash trading describes the act of trading with oneself to create a false appearance of volume, liquidity, and demand for a given trading pair. In the United States, wash trading can result in legal penalties. The most recent example comes from Coinbase. On March 19th, 2021, the CFTC ordered Coinbase to pay $6.5 million for false, misleading, or inaccurate reporting and wash trading.
Wash trading is particularly harmful to retail traders because it creates a legitimate appearance of activity for an asset that, in reality, isn’t generating much demand. These types of situations can create substantial losses for retail traders far beyond the results of selling client orders.
Beaxy Adopts Provably Fair Technology
Thanks to Dragonchain’s provably fair technology, clients of Beaxy Exchange get the transparency that every trader and investor deserves. Beaxy leverages Dragonchain’s Proof Systems to publish a time-stamped record of every order that interacts with the exchange. This allows anyone to analyze all of the order flow on Beaxy, significantly disincentivizing wash trading or order spoofing, which would be visible on the proof report.
Check out Beaxy’s Proof Report to ensure that all orders and transactions were placed and or executed in accordance with the exchange’s order book. In the report, start by selecting the trading pair that you want to inspect. Inside each trading pair, you’ll find a list that contains the timestamp, price, amount, and type of each order for that pair.
Transparent Trading on Beaxy
Get started by creating your free account at Beaxy.com. Sign up today to buy, sell, or trade dozens of cryptocurrencies on a secure and compliant exchange.
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Creating an account on Beaxy Exchange gives you access to:
- Double your stack when you opt-in to the Deposit Bonus program
- Buy, sell, or trade dozens of popular cryptocurrencies
- Access revolutionary trading tools like Trender and Signals
- Become an algorithmic trader with Gunbot, Hummingbot, Autonio, and more
- Download the Beaxy Exchange mobile app for iOS and Android.