Digitex is in the process of building the world’s first commission-free futures exchange. For the first time in the history of the financial markets, traders won’t be penalized for doing exactly what the exchange needs to survive – trading. So, as Digitex Futures prepares its platform for launch, could it be on the verge of redefining the way financial exchanges operate forever? Luke Green explains…
Commissions have likely been a part of trading since the first recorded buying and selling of shares occurred in Rome in the 2nd century BC. However, we do know from the Buttonwood Agreement that commissions were an accepted part of trading as far back as 1792.
In this document, the founding fathers of Wall Street agreed to set their commissions at a very reasonable 0.25%. So as a concept, commissions in trading are about as mainstream as wheels on cars.
But why charge commissions? Simply put it’s because there are costs and owners who want to profit. Exchanges are in essence, marketplaces.
So, whether it’s the rental fee for setting out your cake stall or the hosting costs for your exchange interface, marketplaces all have one thing in common. There are overheads that need to be paid.
Of course, there are many ways to recoup these costs. It could be membership fees, listing fees, or software licensing fees, to name a few. However, commissions are favored for their market efficiency.
They allow marketplace owners to recoup costs at the point of exchange but they remove the ‘perceived’ upfront cost for the vendor using the marketplace. On the surface, this seems like a win/win arrangement but the commission model comes with inherent problems.
For example, if one marketplace becomes the dominant player, it will tend to work against its vendors to maximize profits. Rebalancing can only happen if another marketplace starts to become competitive.
Specifically, for futures trading, paying a per-trade commission means every trade must meet a minimum profitability threshold since you have to pay the house first. Only once the trade has paid for itself does it become profitable.
So for a short-term trader who’s dependent on fast and frequent transactions, commissions eat into your profits and add to your losses.
The New York Stock Exchange (NYSE) was formed in 1792. It dominated the US economy for nearly 200 years until the NASDAQ exchange emerged as a contender in 1971.
NASDAQ took a new technological approach, providing a network of computer terminals to make trading both faster and cheaper. The NYSE only managed to retain its dominance by actually listing on the NASDAQ, merging with another company and going onto adopt modern practices.
This example is just one of many that illustrate how technology has the power to disrupt long-established business models. Of course, with the advent of the internet and smartphones, super-fast trading marketplaces are now literally in your pocket. Yet its seems, despite tireless innovation everywhere else, the old-school concept of commissions remains central to most marketplace services.
The market’s stubborn grip on the commission model is most likely due to a combination of industry blindness and profiteering. Why innovate when there’s money to be made?
However, with the emergence of ‘trustless’ self-governing systems, blockchain technology has created the tools to revolutionize the entire concept of commission.
How Can It Be Commission ‘Free’?
Of course, nothing is free right? That idea died the moment we found out that the price to pay was our data. Even so, how can Digitex remove something as fundamental as commissions and continue to pay its bills?
The answer, it turns out, is to shift where the costs of running the exchange are recouped. To create a dedicated currency (DGTX) via which all financial transactions on the exchange take place. In doing so, Digitex has created a mechanism that will efficiently capture the value of the exchange directly into the DGTX token. By initially selling token from the Treasury and then eventually through token issuance, Digitex can realize a portion of the DGTX token value, which it will use to run the exchange.
It’s a groundbreaking idea with maximum upside for all invested parties. For traders, it means they will be able to pursue previously unrealistic trading strategies, performing fast and frequent trades and scalping all of the profits for themselves. Not to mention the fact that the uniqueness of commission-free trading, which is just one of the many features offered by Digitex, will create a huge amount of demand. This demand will also serve to offset the inflationary effect of issuing new DGTX tokens.
So, Could This Be The Future?
If the Digitex Exchange proves as popular as the previous DGTX price rallies indicate, it will completely reshape the dynamic between the vendor and marketplace. This will have far-reaching consequences for the entire exchange industry.
We live in a world where the old systems and processes are increasingly being exposed for their frailties and weaknesses. Now, Digitex could have a working example of a robust business model that finally realizes the promise of blockchain technology in a practical and user-oriented context.
For the first time, there will be a futures exchange that operates as a self-governing autonomous organization, placing just as much priority on the profitability of its participants as it does the sustainability of its operations. It is almost guaranteed to send reverberations far beyond the cryptocurrency and fintech sphere.
That is massive.
If you want to be a part of this revolution, then the best way is to get your hands on some DGTX tokens. The Digitex Treasury is open for business, and Treasury tokens are helping to provide a sustainable means of funding Digitex throughout the exchange’s build, launch, and beyond. You can find out more about how it works, and how to buy, on the Digitex Treasury page.