The current collectible market or NFT trading space is reminiscent of the early days of Wall Street and rapidly growing like there’s no tomorrow. However, to meet its full potential in a financially secure future and sustainably long-term viability, the industry needs systemization, regulations, technological infrastructure, or in simpler words, it needs market structure.
When traders look at NFTs, they see rarity and listing price, but that is about to change. Market structure refers to the underlying way a market operates, and let’s break down some missing components and the players building them.
Price Discovery
Price discovery is the process by which asset prices are determined. It is a critical component of efficient markets and essential to the proper functioning of financial markets.
In traditional markets, price discovery occurs through the interaction of buyers and sellers in the marketplace. Prices constantly change as new information is discovered and new participants enter or leave the market.
In contrast, NFT trading platforms are still in their infancy and lack the same level of liquidity and market depth. As a result, prices on NFTs can be more volatile and less efficient, but companies like Upshot are bringing deep insights into NFT markets using analytics.
Trade Margin
In NFTs, trade margin refers to the difference between the buy and sell prices of an NFT. This margin is used to cover the costs of buying or selling an NFT and any other associated fees. When an NFT is traded, the trade margin is used to determine how much each party will pay or receive, and this has led to GSR creating a defacto trading desk for NFTs.
The size of the trade margin can vary depending on several factors, including the rarity of the NFT, the demand for the NFT, and the platform on which the NFT is being traded. In general, rarer and more popular NFTs will have a more significant trade margin than less rare and less popular NFTs.
Trade Execution
Trade execution is a vital part of the investment process in traditional markets. It’s how you ensure you get the best price for your buy or sell order.
In the NFT market, trade execution is just as important. But it’s also become more complicated.
The reason is that there are now so many places to buy and sell NFTs. There are exchanges like OpenSea, Uniswap, and new types of NFT marketplaces constantly popping up.
Knowing where to execute your trades can be challenging with so many options.
The Wild, Wild West
NFT trading is still in its early days, but several businesses like BLUR are already working to build the infrastructure that will enable it to become a professional market. This is a positive development, as it will attract more participants and increase liquidity for size with companies like NFTFI, thus making NFTs more accessible and liquid assets. In addition, it will also help to standardize the market, which will make it easier for buyers and sellers to trade NFTs professionally.
Rocco Strydom is the Founder of SGM Holdings – finance, energy and media and is the host of the
SGM podcast based in South Africa
