IMF: Digital Stock Trading Poses Risks

Digital stocks are tradable 24/7, but research from the International Monetary Fund (IMF) shows that prices can fluctuate more significantly during periods of low buyer and seller activity. The IMF analyzed five U.S. digital stock and index products from Ondo and xStocks across eleven trading venues over 365 trading days. More than half of the trading occurred outside regular market hours, with price fluctuations approximately one and a half times larger than those of traditional stocks. Digital stocks are tokens on a blockchain that represent a share or right, and over 80 percent of transactions involved less than one full share. This facilitates the purchase of small portions of expensive stocks, with trading continuing in the evening and on weekends. However, the tradability is weaker, especially on decentralized platforms, meaning a single order can have a greater impact on the price. The IMF points to limited risk for the financial system but warns that with a growing market for digital assets, such as the quadrupling this year, problems could escalate more quickly. Sudden price drops could lead to automatic sell-offs and trading outside market hours could increase pressure. The IMF advocates for clear rules and oversight on liquidity and security before this market grows further.

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