With the price of Facebook stocks having the potential to more than double in the space of a matter of months, there is understandable excitement about the firm. This raises the question of how to buy Facebook stocks and share in the spoils.
Fortunately, recent developments in the online broking industry offer up easy and safe ways to try to make a profit. With this in mind, in this guide, we’ll cover:
- Essential guidance for those new to trading
- How to actually buy Facebook stock
- ‘Leverage’ and other terms explained
- Monitoring positions and ‘closing out’ trades
Essential guidance for those new to trading
Facebook’s return on investment of 103% between March and August 2020 had been tipped by some analysts to be the start of a long-term trend. The argument is that the COVID-19 pandemic functioned as a catalyst for the digital economy to take off.
Unlike the dot-com boom of 2000, that surge in tech-stocks is backed up by real-life increased revenue streams. Each unit of Facebook stock represents an entitlement to a share of future earnings.
The greater that future earnings are believed to be, the higher the stock price now.
For decades, gaining access to equity investments involved several layers of administration as agents and brokers entered the market on your behalf. This process was slower and more costly than it needed to be.
That’s all changed, and online brokers offer global investors easy to use and secure online trading platforms so that those looking to buy Facebook shares can do so with the click of a button.
How to actually buy Facebook stock
If you had picked the bottom of the COVID stock market crash, you could have bought one Facebook share for $137. That price, last seen on 16th March 2020 now looks very cheap with price pushing on considerably from there.
The below screenshot is taken from an eToro trading account and shows the process of buying one Facebook share at more recent price levels.
The data fields include direction and size of order (‘Buy’ 1.00 Unit). There are also optional risk management tools such ‘Stop Loss’ and ‘Take Profit’ instructions, which are automated ‘sell’ orders you can build into the system to cap your downside and/or lock in any gains.
In this case, an order is being ‘built’ to trade once the US exchanges open. If price at market open is anywhere near where it closed at the end of the previous session, our account will exchange $267.08 for one share in Facebook.
Unlike forex markets, stock markets still have set trading times and keeping up to speed with opening hours and knowing what you’re trading can help your bottom line.
The broker IG offers a large degree of transparency and provides its clients with documents such as the above ‘Key Information’ document. Behind the scenes information such as this is important.
Something else to look out for when putting on a trade is if there are trading commissions or holding fees associated with your position. At eToro, any additional charges are outlined at the time of trade.
The above snapshot of our buy instruction shows no mention of holding fees. Furthermore, US equity trading at eToro is currently commission-free. That means by clicking on ‘Set Order’ we are taking on an easy to book and low cost ‘buy and hold’ style strategy.
Slightly more sophisticated trading options are also available. IG offers a market in trading Facebook shares, which is open longer than the standard 09:30–16:00 eastern time hours that the Nasdaq exchange is open.
The ‘All Sessions’ version of Facebook found at IG can be traded 16 hours a day at 09:00–01:00 (UK — London Local Time). This allows traders more flexibility and a chance to trade news that hits the markets ‘after-hours’.
‘Leverage’ and other terms explained
Those trading Facebook stock in CFD format at online brokers also have the option of using leverage. A small adjustment to the trade instructions increases our exposure to the stock considerably. This time, the instruction is to buy 10 shares of Facebook at x5 leverage.
As such, we will effectively be buying 50 (10 x 5) Facebook shares, which is a total value of 2,673.20
Trading using leverage increases the stakes on the trade. It basically involves borrowing money from the broker and scaling up in position size. As a result, each percentage point move in the stock price will lead to a proportionately greater move in real cash terms.
Leverage is often used by traders running shorter-term strategies. They are looking to make a quick profit and so run greater exposure to try to generate profits sooner than if they bought an unleveraged position.
Using leverage is risky. In the same way that any profits are multiplied, so are any losses. Those looking to use leverage for the first time are strongly advised to start trading on a virtual account first. These are free to use and a good way of testing new ideas.
Monitoring positions and ‘closing out’ trades
The aim of trading is to make money. If the price of Facebook increases after a position has been bought, then there will be a profit shown in the area of the site, which brokers tend to label ‘Open Positions’ or ‘Portfolio’/ Here, you can track the performance of your investments.
If the Nasdaq is open, then the profit or loss on your trade will update in real-time. If the exchange is closed, then the last printed price will be used to ‘mark’ the value of your position.
This can lead to ‘Gapping’ and is one reason that explains the popularity of the ‘extended hours' versions of stocks such as Facebook All Sessions at IG.
Real-time reports at the broker will show you pending orders and open positions. The below portfolio follows the textbook approach of diversifying cash across several assets rather than putting all the available funds into one position.
The mechanics of monitoring your positions are the same regardless of what strategy you are following.
One variable is the typical holding period. If your buy of Facebook stock is based on a short term strategy such as scalping, you may look to sell your position within minutes of buying it. That strategy could be based on a high volume of small profits being made.
Buy and hold style strategies involve lower trading volumes but may introduce the concept of a ‘partial close’. This is where a portion of the total position is sold to lock in some profits while the rest of the position is left to run in the hope it makes further gains.
The functionality of modern brokerage sites is super-friendly and closing out a position at eToro involves clicking on it in the ‘Portfolio’ monitor. Then confirming your intention to sell and in this instance locking in a 19.81% gain.
Final thoughts and considerations
Buying Facebook stock might be easy, but one of the most important things to remember is to use a regulated broker. The big global brokers such as Pepperstone, eToro and IG, for example, operate under license from a range of Tier-1 regulators including:
- The Financial Conduct Authority in the UK (FCA)
- The Australian Securities and Investments Commission (ASIC)
- The Cyprus Securities and Exchange Commission, (CySEC)
Ultimately, the decision as to which of these regulators provides you with client protection will come down to where you live.
Whether you are buying US stocks such as Facebook, or commodities, forex, or German equities, the regulatory protection is a function of your domicile, not the market you trade.
Finally, it’s important to consider using a broker that is licensed by a top-grade regulator or else you run the risk of losing all your capital before you even put a trade on.