• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Toro Demo Trading

Everything you need in your trading journey

  • Trading Platforms
    • Broker VS Broker Compared
    • Trading Platforms Broker Fees
    • Trusted Trading Platforms
    • Etoro Broker
      • Etoro review and trust
      • eToro Trading Strategies
      • Etoro risk mangsment
      • Etoro Acount and Guide
      • Etoro Copytrading
      • Etoro CFD
      • How to on Etoro
      • Etoro Forex
      • Etoro Crypto
    • Pocket Option
    • Trading 212
    • Plus500
    • IronFX
    • InstaForex
    • Interactive brokers
    • AVATRADE
    • easyMarkets
    • Swissquote
    • Trade nation
    • CMC markets
    • Trade360
    • Pepperstone
    • XM.com
    • FP Markets
    • ForTrade
    • FXPRO
    • HFM
    • Exness Broker
    • FBS
    • FXTM
    • IC markets
    • Capital.com
    • Admirals
  • Trading
    • Technical analysis
    • Fundamental Analysis
    • Trading Psychology
    • Stock trading
    • Commodities trading
  • Strategy
  • Free Trading Tools
    • Forex Market Hours
    • Trading checklist
    • Trading Balance Growth Calculator
    • Martingale Calculator + Strategy explained
    • Trading Indicators Accuracy backtest
    • Calculate Your Way to Become a Millionaire
    • Gain-Loss Percentage Calculator
    • Forex Tools for trading
    • Economic Calendar
    • Technical summery Currency pairs Buy and Sell
    • Crypto Currencies top-10 Active Price Movement
  • Video tutorials
  • Elite Signals

Author Bart Bregman

Bart Bregman

Author & Financial Analyst: 9 Years of full-time trading experience. "There is no such thing as a bad trade."

Disclaimer: The information provided on this blog should not be seen as financial advice, and is only intended for entertainment and informational purposes. ➤ Advertiser Disclosure

What is Stock-to-Flow ratio? A quick guide

Not a day goes by without some news on big unexpected price changes of Bitcoin and other cryptocurrencies coming out. Truly no other asset receives such controversial attention from the media and had so much speculation about its price movements, to a large extent because of how innovative, underresearched and unique it is. Many academics and traders have attempted to model its price movements by employing various tools of technical analysis and econometric modelling. Recently, some traders started to employ the stock-to-flow (S2F) model to price Bitcoin and other cryptocurrencies too. Let’s have a look at what this model is, how it can be used to price assets with limited supply and what is means to your trading process on eToro.

Stock-to-flow etoro

What is stock-to-flow ratio?

Table of content

  • What is stock-to-flow ratio?
  • Using stock-to-flow on eToro
  • Trading Technical Analysis: • Learn more📝
  • Trading Basics:
  • Candlestick Patterns:
  • Contrarian Trading and Pattern Recognition:
  • Trading Patterns and Strategies:
  • Market Sentiment and Volatility:
  • Technical Analysis:
  • Trading Patterns:
  • Trading Features & Strategies:
  • Indicators & Analysis:
  • Market Conditions & Trading:
  • Disclaimer And General Risk Warning:
  • Author & Expert Trader - Financial Analyst:

Strictly speaking, stock-to-flow model is not an innovation and has been used to model prices of scarce assets with limited available supply such as precious metals like gold and silver for a while now. It is based on the idea that scarcity of an asset leads to it having a greater value. However, the first time it was used for Bitcoin was only in the beginning 2019; because the supply of this asset on the market is fixed by the way it was engineered, it is now being compared to other scarce assets like metals and commodities by some investors. A general formula for the stock-to-flow ratio is units of stock divided by units of flow, so the quantity of asset that is kept in reserves by the quantity that is produced every year.

How does it work?

For the simplicity of this example, let’s assume a type of a rare metal was recently discovered. Because of its scaricity, it is kept for investment purposes and currently there are 100 000 units of it available in reserves and these units are referred to as the ‘stock’. Every year there are additional 1000 units mined, which are referred to as ‘flow’. We can then obtain the stock-to-flow ratio by dividing the total number of units in stock by the number of flow units, 100 000 / 1000 units = 100. Is this value too high or too low? As always for financial metrics, this ratio is relative and depends on what you are comparing it to. Assets with higher stock to flow ratio are more valuable to investors as they indicate greater scarcity since less and less additional supply is added in relative to the existing amount of that asset. This ratio is mostly relevant to assets with limited supply, such as precious metals like gold and silver and recently cryptocurrencies. Therefore consumption goods and commodities produced industrially would have a relatively low stock-to-flow ratio; this makes sense as these assets are consumed, production and inventories of them are kept to satisfy the contemporary market demand, not for investment purposes.

S2F gold eToro

Stock-to-flow is very important to scarce or rare assets because their valuation depends on how much new supply can be generated in comparison to their total existing supply. We can then say that price appreciation is based on assets’s rarity. However, it is not scarcity only that creates value; in fact there is quite a big quantity of precious metals like gold in global reserves. What matters here is the fact that the yearly production of these assets as compared to existing amount in stock is quite small and the rate of extraction doesn’t really change over time.

Stock-to-flow and cryptocurrencies

Why is this measure actually needed? It basically became a very important metric in technical analysis for price predictions in scare assets and now also cryptocurrencies such as Bitcoin. This model basically compares Bitcoin and cryptocurrencies to scarce assets like gold, silver, platinum in order to price them. Despite being a digital asset, the quantity of Bitcoin is limited to 21 million coins because of the way it has been set up using mathematical limitations. In fact, around 89% of it has already been mined. This percentage changes approximately every 10 minutes as new coins are mined. Furthermore, some coins are ‘lost’ because its owner has lost their access key to it. Because of this, Bitcoin is actually a scarce asset and it is possible to model its price changes using the stock-to-flow model. It has limited supply, it is expensive to produce new coins and there is a limit to the maximum number of coins that can ever be produced which makes its production quite easy to predict by this model.

The ‘flow’ component of Bitcoin can actually change every time it is halved, which happens every 4 years approximately and involves reducing (halving) the number of coins given as a reward for mining them i.e. adding new transactions to the blockchain. That changes the ‘flow’ of Bitcoin that is available in the world and ensures that the market is not flooded with coins, rising the price of this asset and making it more valuable.

Using stock-to-flow on eToro

So what does the model suggest then? Since Bitcoin and other cryptoassets are scarce digital instruments, their price should increase over long-term according to the model. You can visualize this on a graph that plots Bitcoin’s stock-to-flow ratio over time, suggesting certain price levels by projecting the line in the future and taking into account the expected times of halving.

Graph S2F etoro

Some traders may choose to use this model as one of the ways to anticipate price changes in their investing process.

A note of caution

One thing to realize here is that the set up for price prediction using stock-to-flow is just a model and is based on a great number of assumptions. There are many ways to model prices of assets, some more common amongst traders and other, more controversial, to a smaller extent. Many analysts and traders have critisized the model due to its simplicity and the fact that it ignores many other factors that influence an asset’s price. In fact, can we actually compare cryptoassets to things like gold and can we actually base price predictions only on scarcity? Many would answer ‘no’ to these questions. Another question that still remains as a topic for discussion amongst investors is what will happen when all of the Bitcoin will be mined? This model can hardly answer that.

Furthermore, there are many short-term factors that affects the price of Bitcoin making it deviate from the S2F line, including important news, investor behavior, new regulations etc. Remember that cryptocurrencies are extremely volatile, just look at how much the price changed over the last 12 months and how wide its daily range is!

Bitcoin volatility etoro

Now, please note that this is just one of models out there used for price prediction. In fact, it is based on many assumption that some believe to be invalid. The outlook of this model is also quite long-term and it is not the model to predict short-term price movements so should not be taken as investment advice. Traders who do not believe in it or prefer to make profits on short-term price fluctuations prefer to use technical analysis to do so. Luckily, there’s plenty of such helpful tools available on eToro.

Technical tools Bitcoin etoro

By now you hopefully have a better understanding of what stock-to-flow ratio is and how it can be used to price scarce assets. Remember that trading both commodities and cryptoassets on eToro involves a lot of risk and should be done with great caution. Best of luck and enjoy using the platform!

Trading Technical Analysis: • Learn more📝

Trading Basics:

  • Algorithmic Trading on eToro
  • Buy Rumor, Sell News Strategy on eToro
  • Breakout Trading on eToro
  • Contrarian Trading on eToro
  • Commodity Spreads on eToro

Candlestick Patterns:

  • Candlestick Patterns on eToro
  • Bollinger Bands on eToro
  • Breakout Trading on eToro
  • Commodity Spreads on eToro

Contrarian Trading and Pattern Recognition:

  • Contrarian Trading on eToro
  • Pattern Recognition on eToro
  • Day Trading on eToro Tips
  • DE Ratio on eToro

Trading Patterns and Strategies:

  • eToro Risk Reward Ratios
  • Trade the Evening Star Pattern on eToro
  • Stair Steps Pattern with Trendlines
  • Guide to Using Pin Bar Candles on eToro

Market Sentiment and Volatility:

  • Analyze Market Sentiment
  • Volatile Market Trading Strategies
  • Bull Market Top Tips for Traders
  • Bear Market Strategies for Traders
  • Volume Indicators in Trading
  • Trading in a Flat Market
  • Understanding Market Trends

Technical Analysis:

  • Using Moving Averages in Trading
  • Understanding Support and Resistance in Trading
  • Using Retracement in Trading
  • Using Trendlines in Trading

Trading Patterns:

  • Bearish Engulfing Pattern
  • Bullish Engulfing Candle Stick Pattern
  • Morning Star and Evening Star
  • Morning Star Pattern
  • Railway Tracks Candlestick Pattern
  • Shooting Star Candlestick Pattern
  • How to Use Triangle Pattern
  • How to Trade Three White Soldiers Candlestick Pattern
  • Rainbow Pattern
  • Understanding Flag Patterns
  • How to Trade Bullish Engulfing Pattern

Trading Features & Strategies:

  • eToro's Risk Score Feature
  • Market Cycles on eToro
  • Mastering Trading Journals
  • Mastering Volatile Candlestick Patterns
  • Mastering Volatility Spreads
  • Price Action Trading
  • Range Trading

Indicators & Analysis:

  • Leading & Lagging Indicators
  • Moving Average
  • Oscillator Indicators
  • Parabolic SAR Indicator
  • Sentiment Analysis on eToro
  • Strategy Backtesting
  • Technical & Fundamental Analysis
  • Technical Indicators
  • Guide to Using the EMA Indicator

Market Conditions & Trading:

  • Best Trading Tools for Bearish Market Conditions
  • Best Trading Tools for Volatile Market Conditions
  • Long-Term Trading Patterns
  • Bear Market on eToro
  • Trading Signals on eToro 2023
  • What is Shorting on eToro?
  • What is Stock-to-Flow Ratio?
  • Support and Resistance Levels


Disclaimer And General Risk Warning:

  • ► The information provided should not be seen as financial advice and is only intended for entertainment and informational purposes.
  • ► Financial asset providers listed offer a variety of financial products and services, including Stocks, Crypto assets, and CFDs.
  • ► CFDs are complex instruments with high risk due to leverage. In fact a 77% to 86% of retail investor accounts lose money when trading CFDs. Make sure you understand how CFDs work and evaluate whether you can afford the potential risk of losing your money.
  • ► Past performance does not guarantee future results. A trading history of less than 5 complete years may not be sufficient for making investment decisions.
  • ► Financial asset providers do not constitute investment advice. The value of your investments can fluctuate, putting your capital at risk.
  • ► Cryptoasset investments are highly volatile and may be unregulated in some jurisdictions. Consumer protection may not be available, and taxes on profits could apply.
  • ► USA financial asset providers are not affiliated with any specific entity and do not offer CFDs. The platforms take no responsibility for the accuracy or completeness of the content in this publication, which is based on publicly available, non-entity-specific information.
  • ► Trade with caution and be warned!


Author & Expert Trader - Financial Analyst:

Bart Bregman
My name is Bart Bregman and I am a full-time professional trader with nine years of experience. I specialize in shorter-term trading using technical analysis, and I have extensive experience with Stocks, CFDs, Options, and Crypto trading. I believe that there is no such thing as a bad trade. I'm currently traveling the world as a digital nomad trader. You can follow my journey on Instagram at https://www.instagram.com/bart_bregman/

You might also want to read

Best All round choice for in MU

Our Best of Best All-round trading Platforms for in Mauritius (selected out of more than 50)

Looking for the top-notch brokers in Mauritius? Look no further! Here we have pinpointed the best … [Read More...] about Our Best of Best All-round trading Platforms for in Mauritius (selected out of more than 50)

Who Owns FP Markets

Revealed: The Ownership behind FP Markets

Trust me, I get it. Sometimes, it feels like trying to find out who owns your favorite forex broker … [Read More...] about Revealed: The Ownership behind FP Markets

IronFX vs HFM

IronFX vs HFM: Unearthing the Best Broker for Your Needs

👨‍💼💰Are you torn between IronFX and HFM and can't decide which broker is right for you? Worry not! … [Read More...] about IronFX vs HFM: Unearthing the Best Broker for Your Needs

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

XM Known for: Competitive spreads, low fees, and reliable trading platforms.

XM Logo Visit XM - $30 sign-up Promo

Be mindful: Trading involves risk and may lead to loss of capital.

eToro Known for: Social trading features, copy-trading, diverse asset classes.

etoro Logo Free Demo Acount

77% of retail investor accounts lose money.

Pocket Option Known for: Flexible binary options trading, user-friendly beginner platform.

Pocket Option Logo Visit Pocket Option

Be mindful: Trading binary options carries risks.

eToro sign-up form

Footer

  • About Us
  • Contact us
  • Careers
  • Sitemap
  • Risk Warning
  • Advertiser Disclosure
  • Earnings Disclaimer
  • Privacy Policy
  • Privacy Policy – Toro Demo Trading app

BE MINDFUL: Trading Contracts for Difference (CFDs), Foreign Exchange (FX), cryptocurrencies, binary options, stocks, commodities, and other financial instruments, involves significant risk. A high proportion of retail investors lose funds (77%/86%) when trading these assets. Ensure you fully comprehend the risks and are financially able to bear potential losses. The prices of volatile assets, especially cryptocurrencies, fluctuate extensively and may not suit all investors. Some assets, including cryptocurrencies and binary options, lack EU regulatory oversight. Remember, your capital is at risk. The information herein is for educational purposes and shouldn't be seen as professional investment advice. Any results, real or simulated, do not guarantee future performance. Speculation in financial markets involves high risk, and participants assume full responsibility.

ADVERTISER DISCLOSURE: Torodemotrading.com offers a free service to users. We may earn a commission from featured brokers, but this does not affect our objective reviews and rankings. Your support in opening accounts via our links helps us maintain quality, free broker reviews. For more details, please visit our ➤Advertiser Disclosure

GENERAL RISK WARNING

The products offered by companies listed on this website can be very risky and you could lose money by investing in them. In fact, 77% of people who invest in CFDs end up losing money due to the leverage that is involved. Be warned!
Copyright © 2023 Torodemotrading.com

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish.Accept Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are as essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
SAVE & ACCEPT