What Are Tokenized Stocks? How Do They Work?

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Tokenized stocks or stock tokens are digital assets that represent stocks of publicly listed companies. The purpose of stock tokens is to enable everyone to trade top-listed stocks across the world irrespective of their location.

Are tokenized stocks the same as regular stocks?

No. Tokenized stocks are cryptocurrencies, i.e. digital assets that are based on blockchain technology. They are essentially virtual assets and their values are not regulated or controlled by governments or central banks.

Unlike regular stocks, tokenized stocks cannot be traded on a regular stock exchange.

Tokenized stocks are based on traditional stocks and mimic their price actions, but they only exist virtually and have no material presence like regular stocks of listed companies.

Stock tokens can only be traded on a digital exchange or a cryptocurrency exchange. Reflection.trading is an example of a trading platform for stock tokens.

Why do we need tokenized stocks?

Here are some benefits of stock tokenization:

Global access — anyone, anywhere in the world can purchase stock tokens of globally listed companies.
Transferability — one can easily transfer their stock tokens to others like regular cryptocurrencies, and use them for payments, gifts, and more.
Buy fractional shares, i.e. a part of a share of stocks in the form of crypto tokens. Not necessary to buy a complete share if it’s too expensive.
No bank account is needed to buy stock tokens on Reflection.

How do tokenized stocks work?

Let’s try to understand the functioning of tokenized stocks with the example of Reflection.trading, which is a crypto trading platform for stock tokens.

The Reflection platform uses stablecoins to allow its users to buy, trade, and redeem stock tokens. It acts as an investment institution that allows users to buy tokenized stocks on its platform. In other words, the platform can be used to tokenize a stock in order to buy and trade it on the blockchain.

Users looking to buy stock tokens on Reflection must have a certain stablecoin in their wallet. When a user places an order to buy a stock token by sending their stablecoins to Reflection, the platform buys the underlying stock from the market and deposits it in their brokerage account.

In turn, it mints corresponding stock tokens on the blockchain and deposits them in the user’s wallet. The price of each stock token is pegged to the real-time value of the underlying stock.

Stock tokens just like regular cryptocurrencies can be bought, traded, and sold on a supported cryptocurrency exchange. A holder of a tokenized stock will not actually own the underlying stock (and will not have any rights to it) but will gain from the price movement of the stock. They can sell their tokenized stocks at any time on the exchange.

Here’s how to trade tokenized stocks on a crypto exchange:

Find a crypto exchange that supports the trading of tokenized stocks or stock tokens.
Create an account on the exchange platform.
See what payment options the platform has for the trading of stock tokens. Most crypto exchanges, including Reflection.trading, will need you to have a MetaMask wallet or any other crypto wallet to buy stock tokens. On Reflection, you can buy stock tokens using BUSD.
Fund your wallet, i.e. deposit BUSD to your MetaMask wallet.
Buy the stock token at the current market price.

Tokenized stocks are tradable, transferable, globally accessible, and offer more liquidity than regular stocks. They enable you to gain exposure to traditional stocks while also enjoying the benefits of cryptocurrencies such as high security, liquidity, and low fees.