Trading Facebook Stock: The Essentials
Facebook has grown to become the largest social media network in the world with more than a billion users. Over the years, the company has made such strategic acquisitions, buying Instagram and then WhatsApp for more than $19 billion. So you have a in Facebook, a three-in-one conglomerate that collectively hosts billions of users, many of these on the three platforms.
Facebook makes the bulk of its money from selling advertising. The biggest question surrounding Facebook at the time of its Initial Public Offering was: would it be able to cash in on the emerging mobile internet usage market by making its platforms more mobile compatible?
Facebook has answered this question in grand style, and its stock has more than quadrupled beyond its initial public offer price over the last five years. By being able to snag in more users through its acquisition of WhatsApp and Instagram, Facebook has created a larger market than was ever envisaged for its advertising platform.
However, this growth has not come without a cost. The company has run foul of privacy laws in several instances, including the Cambridge Analytica scandal where the user data of millions of Facebook users were allowed to be illegally accessed by this firm and for which Facebook has been fined $5billion by the Federal Trade Commission.
In terms of stock trading as well as shares CFD trading, Facebook offers a lot of opportunity for traders and investors alike. This guide will look at aspects of the trading of Facebook, the fundamentals that move Facebook stocks, use of technical analysis in trading this stock, as well as how to buy or sell the Facebook CFD across three trading platforms.
Here are some useful nuggets of information to help you understand some important aspects of Facebook trading.
- Shares CFD trading (including that of Facebook stocks) is a process that requires the trading of the derivative on a platform that supports long trades (BUY) and short trades (SELL).
- Trading of Facebook stock can be done using two market orders (BUY and SELL) as well as a variety of pending orders (Buy Limit, Sell Limit, Buy Stop, Sell Stop, etc).
- Facebook stock CFD trading means that the trader is not buying or owning the shares of Facebook per se, but is simply buying or selling a contract which tracks the price of Facebook on the Nasdaq exchange.
- Facebook stock CFD trading is a leveraged activity. Depending on where you live and the platform you are using, you will be trading with a leverage of 1:5 (EU and UK platforms such as eToro, Forex.com UK and XM Cyprus or XM UK), or you may be trading Facebook at higher leverage of between 1:10 and 1:200 (Australian and international platform offerings of eToro and XM).
- Facebook stocks can be analyzed technically and fundamentally.
TRADING FACEBOOK: FACTORS TO CONSIDER
What are the factors that traders must consider when trading Facebook stock?
Just like other derivative assets, Facebook can be traded on the basis of buy or sell trades. What drives up the price of a stock like Facebook or brings it down is the law of demand and supply. Demand and supply of a stock is a product of psychology. Psychology refers to the mindset of traders at any given point in time. Traders at any point in time will be doing the following:
Demand and supply of a stock will therefore dictate the volume of trading orders that will either be buying or selling Facebook stock. The uncommitted pool of traders is also a very important metric to be considered in terms of market fundamentals. This pool of traders usually waits for a trigger that will either push them to join the buying party and hence increase demand, or to join the sellers and therefore increase the supply pool.
Increase in demand will cause prices to go up, while increased supply will cause prices to go down. Usually, for all stocks including Facebook, there are critical news releases which are known as catalysts.
These catalysts ultimately answer the question: is this stock intrinsically viable enough to make money for me if I buy it, or is it overpriced to the point where if I sell it now and buy it later on, I may make money from it (short selling)?
Every stock has its own set of catalysts. However, there are some catalysts which are known to be common to all stocks and some which are unique to individual stocks. No matter the catalyst, the stock of any company, Facebook included will react to a news release in the following way:
- If a news release is positive for the stock in question, money flows into the stock, which creates a demand that pushes prices upwards.
- If a news release is perceived as being negative for the stock, then money flows out of the stock and the price drops.
Each fundamental catalyst will produce one of these two responses. This is because the catalysts create a perception in the minds of traders, and will make them either put money in the stock or take money out of it.
But how do traders get perceptions of a news release being good or bad for a stock? This comes from the comparison of numbers.
- First, there is a previous number. Usually, this is a past figure shown in a news release. For instance, the earnings per share of a previous quarter in the same year, or more appropriately the same quarter in the previous year.
- There is a consensus number. A team of economists are usually polled by polling agencies and financial news outlets or market research sites. These economists arrive at a figure that they think the news release will show. For instance, economists can come together to decide that the earnings per share of Facebook is XYZ cents or dollars per share. This consensus figure now serves as the benchmark on which the actual figure is measured.
- The actual result is reflected when the news is made public e.g. release of an earnings report. A comparison is then made between the actual figure and the consensus figure. If the actual figure is better than consensus, this produces positive sentiment for the stock, and traders will buy the stock in droves, creating a surge in demand and prices will rise. If the actual figure is worse than the consensus number, then a negative sentiment is produced and traders will sell the stock in droves, creating a supply surge and a fall in prices.
But it is not only the actual figure versus the estimate/consensus figure that stock traders will look at. They will also look at the degree of deviation between both sets of numbers. The wider the deviation, the greater will be the market response. So if the actual number is so positive as to create a deviation from the consensus which is wider than the deviation between the consensus and previous number, the response will be that of strong buying. Similarly, a very poor actual reading which has a deviation from the consensus that is wider than the deviation between the consensus and past number, the response will be that of strong selling.
With these in mind, let us look at the fundamental catalysts for Facebook stock. Fundamental catalysts for Facebook are as follows:
Earnings Reports: These are released every quarter and showcase the revenues, profits and most importantly, earnings per share of the company. The most important statistic in any earnings report is the earnings per share, or EPS. This is an important component of a company’s earnings stats. The Earnings Per Share is derived by dividing the total amount of profit generated within the time period under review (usually a quarter or 3 months in an earnings report), divided by the number of shares that the company has listed on the stock market. Whenever the earnings per share are much higher than what the market expected, the stock will experience demand and prices will rise. If earnings per share are lower than the market expected, the result will be net selling, creating more supply than demand and prices will drop.
Scandals: Scandals can make and mar a stock. If a competitor has a scandal, it may boost the stock of another rival company as people may decide to patronize the scandal-free company over another one that is plagued by scandals. But when a stock is a market leader and is plagued by scandal, this can never be good for a company. Facebook is a company which has a lot of user data. Privacy issues around user data is a big deal. To know how big a deal it is, you only need to look at Edward Snowden or Julian Assange to see the kind of lives they live now after leaking sensitive information to the public.
For a business like Facebook which is bound to obey privacy laws and preserve user data, any scandals involving privacy breaches or unauthorized usage of the private information of its one billion users is a big deal…a very negative big deal. When the Cambridge Analytica scandal broke, Facebook stocks suffered greatly. Watch out to see if there are scandals or negative news that will impact the company.
New Product: A new product that will lead to an increase in the company’s revenue and profits, or lead to an increase in market adoption of the company as a whole will lead to the stocks enjoying patronage. Facebook is a tech company and over time, has released a number of tech-related services. However, its advent into the cryptocurrency market has been less than smooth. It is believed that the perception of governments to its Libra cryptocurrency and Calibra wallet will to a great deal, play a part in the medium term movements of Facebook stock.
Technical analysis is the use of chart information to predict price movements. It is as simple as that. It is based on three premises:
- markets move in trends
- history will repeat itself
- market action has priced in everything (including the news)
You can use chart patterns, candlesticks, volume patterns and indicators to predict future price movement of Facebook stocks, even when a news release has impacted prices. A popular market saying urges traders to “trigger fundamentally, enter technically”. So the news gives the direction, and technical analysis shows you where to enter and exit.
Facebook 4-Hour Chart Showing Technical Plays
Look at the chart above. Imagine someone wants to trade Facebook using technical analysis. They would need to know what direction to trade, where to enter and where to exit. We see a descending triangle pattern (bearish pattern), so the bias would be to go short. The pattern is defined by tracing a trendline across at least three highs to form the slanting border, and three lows to form the horizontal border. The short entry is done at the break of the lower horizontal border. There are two exit clues. First the height of the base is usually the same height as the breakout move (two downward arrows). Secondly, the long horizontal trendline cuts across two previous lows, so definitely the breakout move would use this area as a pitstop. In this chart, this area marked the end of the downside breakout move.
Under trade requirements, we are going to have to contend with those things that are required of you in executing the trade process. Let’s look at it this way. You want to travel from Kuala Lumpur to Doha in Qatar. You have your start point (trade entry) and your exit point/destination (Doha). What happens in between? You have to buy your ticket, pack your luggage and ensure it is within the required weight limit, go to the airport, submit yourself to security scrutiny and check in processes, before you actually enter the plane.
So it is with trading. You are required to know the following before you enter the trade:
- Your leverage/margin requirement
- Minimum allowable trade size
- Risk-reward ratio for the trade
- Maximum risk exposure (should not be more than 3% of total capital)
- Asset contract specifications for Facebook
Contract specifications, leverage and allowable trade sizes (minimum and maximum) will differ with each broker, and the three brokers showcased here will indicate the differences.
How to Trade Facebook Stock on eToro – The Tutorial
Here is a step-by-step process of how to trade Facebook stocks on eToro.
eToro is a forex and CFD broker that offers the trading of stocks as contracts-for-difference assets. eToro was launched in 2007 and features Facebook as one of its traded assets. Trades can trade Facebook manually, or can the CopyTrade facility to follow traders who have Facebook as part of their trading portfolios. There is also the opportunity to use the Copy Portfolios product to trade a basket of assets that features Facebook and other assets that share an association with the Facebook company or its partners. eToro is regulated in the EU and UK.
How to Start Trading FB Stock on eToro
Step 1: Account Opening
Open an account on eToro and fill out the multi-step registration form. You can also signup with your Gmail or Facebook accounts.
Questions to be asked include your source of funds, investment experience, a single question to determine your knowledge of trading and risk as a whole and your risk-return tolerance levels.
Step 2: Identity Verification
Provide a government-issued ID such as an international passport as well as proof of residence document (bank statement or utility bill). You will also be prompted to setup 2-factor authentication via SMS. You will therefore need a phone number to which a verification SMS can be sent.
Step 3: Fund your account
Fund your account on eToro using the funding channel and currency available for your country.
Step 4: Start Trading Facebook stock
eToro allows you to use various means of trading Facebook. The stock is available as a CFD, and can be traded using manual methods, copy trade or copy portfolio methods.
Step 4A: Trading Facebook Manually
Go to the search box at the top of the page and enter “Facebook”. Some traders use usernames that incorporate the names of some stocks. So click on the Facebook icon with “Trade” beside it. You will be taken to the trading page of Facebook.
Next, click the “Trade” button. This takes you the order box where you can select the trade parameters. You can choose to Sell or Buy, and you can also use the Trade dropdown button to determine if you want to execute the trade at market price, or using a pending order (limit or stop).
Leverage for Facebook trading could be X1 (no leverage), X2 (2 times leverage) or a maximum of X5 (5 times leverage). Choose your trade size in monetary terms or in units of stock to the traded. Set your Stop Loss and Take Profit levels and execute the trade. Each stock has a profile page which provides statistics, charts, comments, research and social feeds. Facebook’s profile page will contain all this information to enable you get some market research information before you trade.
Step 4B: Copy a Facebook Trader Using CopyTrader™
CopyTrader™ is eToro’s proprietary social trading platform. You can use this to select traders who buy or sell Facebook to copy their trades. It is best to use the selection metrics provided by eToro to filter the traders so you choose the most profitable. Parameters such as risk score (very important), performance stats over 6 months or a year, performance graphs and asset portfolio are used. Most stock traders on eToro will not be trading only Facebook, so you need to copy a trader whose portfolio (that includes Facebook stock) is doing well. Using the CopyTrader™ dialog box, select your Copy Limit and the amount you want to commit to the copy trade, then click on Copy to execute the trade.
Step 4C: Place a CopyPortfolios™ trade
CopyPortfolios™ is a proprietary eToro product which allows traders to copy multiple portfolios and traders which are centered on the Facebook stock asset or products and services of Facebook’s partners. Here, we can see that Facebook’s Libra cryptocurrency is the featured theme. There are several partners that will team up with Facebook to act as holding partners of Libra. This theme therefore selects the stocks of these partner companies and puts them into a single investment portfolio which can then be copied by the trader.
You will be able to review the performance of the Facebook portfolio and the risk profile of this portfolio. Click on the “Invest in CopyPortfolio” tab to start your investment. From the snapshot below, you can see that there is an opportunity to choose the amount you want to invest and you maximum investing limit. To open your eToro CopyPorfolio investment account, click here.
Look at the pros and cons of eToro to decide whether it is a good place to buy or sell Facebook shares. As you can see, there are more pros than cons.
- Account opening process is fast.
- Multiple sign up and login alternatives (Gmail and Facebook).
- Copy other traders using the CopyTrader™ platform.
- You can copy an entire themed portfolio investment using CopyPortfolios™.
- Fees are low.
- Low minimum deposit ($200 or 200 Euros)
- Regulated brokerage.
- User-friendly interface
- Leverage is restrictive for Facebook trading (1:5).
- Charting package is difficult to use.
Forex.com has a US and UK operation, with the UK operation being the only entity allowed to provide services to the international audience. Also, the Forex.com UK is the only branch of GAIN Capital Group allowed to offer CFDs on stocks, so this is where you will trade your Facebook stocks. Forex.com is regulated by the UK’s Financial Conduct Authority (FCA). Popular features include social feeds, research and One Click Trading.
How to Start Trading FB Stock on Forex.com
Step 1: Register your account
First, start by opening your Forex.com account. Fill out your basic profile information. To determine your investor risk profile, you will be asked to answer a few short questions about your investment experience, knowledge and style, as well as your risk-return tolerance. After registration, you will be given your login details.
Step 2: Verify your identity
Attach and submit proof of identity for verification within your members’ area.
Step 3: Fund your account
Funding a Forex.com account can only be done a credit/debit card, bank wire, ACH or a bank cheque. Deposits made using other methods other than bank wires have a $10,000 limit.
Step 4: Trade Facebook stock
On Forex.com, you are provided a link with which to either download the platforms or to use the webtrader. Trading of stocks is available on the MT5 platform. Use the link to open the login page.
After logging in, you will be shown the interface of Forex.com. It incorporates charting from Tradingview and has many of Tradingview’s features.
Step 4A: Place a Facebook stock trade (manual method)
In the top left corner of the platform, there is a space provided for asset selection. Type the word “FACEBOOK” into that space. You will see the stock symbol displayed as shown above. Click on it to load the FACEBOOK chart.
Once the chart is loaded, you can trade in two ways. Either you use the Sell (red) or Buy (blue) buttons as shown below, or you right click on the chart and click on TRADING in the drop down menu that appears.
Whichever option you choose, a pop-up will be displayed showing the order parameters as well as risk exposure for any number of units of Facebook stock you want to buy.
- You can choose a Market, Limit or Stop order for your Facebook trade.
- You can define your stop loss and profit target (TP).
- You can choose the number of units of Facebook stocks that you want to purchase.
- Finally, you can click SELL to sell the Facebook stock, or you can click BUY to purchase Facebook stocks.
If you want to know what you stand to gain and any potential drawbacks of trading Facebook shares on Forex.com, check out these pros and cons.
- Fast account opening process
- Integrated with Tradingview charts (webtrader)
- One-click trade execution
- Low minimum deposit ($50)
- User-friendly interface
- Well-structured affiliate program
- Restricted range of payment methods
- A lot of countries cannot use Forex.com because of broker restrictions.
XM is an international brokerage brand which is owned by the XM Group. XM operates in various jurisdictions, where the brand is managed by different holding companies. XM has a broad base, operating in Cyprus (European offering), Australia and Belize (for international clients).
In order to trade Facebook stocks on the XM platform, you have to sign up for the MT5 platform. XM also offers the MT4 platform, but this platform does not support stocks CFD trading. So you either have to download the MT5 desktop client, or you use the Webtrader and mobile app. The demonstration below focuses on the MT5 Webtrader as this is the simplest way to trade Facebook on XM.
How to Start Trading FB Stock on XM
Step 1: Register your account on XM
Due to ESMA regulations, XM Europe will not take on international clients. These will be migrated automatically to either XM Australia or XM Belize. Fill out your biodata in the first page. You will also be asked to choose your US tax status (XM does not take US clients).
As part of your account opening process, you will be asked to choose the platform to use. Please select the MT5 platform as this is the one that lists stocks such as Facebook for trading. Choose the “Shares Account” type.
Unlike the process in eToro, identity verification is not part of the initial account opening process. You will be required to verify your identity by uploading the relevant domcuments in your “My XM” members’ area.
Step 2: Choose the Platform Version to Use
XM presents the MT5 platform in various versions: as a desktop client, a browser-based platform, and mobile app for iOS and Android devices. Select the platform version of your choice and load it on your trading station. Since we are demonstrating the trade using a Webtrader, we click on “Access MT5 Webtrader”.
Step 3: Fund your account
Click the Menu button, then click on “Deposit Funds”. You will be taken to the “My XM” area where you have to login using your username and password sent to your email after filling the account opening form. After logging in, use any funding method available on the site and acceptable to you to complete the deposit process.
Step 4: Trade Facebook stock
XM does not have a social trading product, therefore all trading of Facebook stocks has to be done manually. If you are using a desktop version of the MT5 platform, you would be able to trade Facebook stocks with an MT5 robot. Here’s how to perform manual trades on the Webtrader.
Step 4A: Place a Facebook stock trade (manual method)
The first step is to access the MT5 webtrader. Go to https://mt5.xm.com, then enter you username and password when prompted to do so. The MT5 platform will display as shown above.
You have to add the Facebook stock CFD to the list of traded assets on the Market Watch window. Where you see “Click to Add”, enter the word “Facebook”. A small pop-up will display the name of the Facebook contract, which you have to click in order for Facebook to appear in the Market Watch.
Now that Facebook is in the Market Watch, it is time to trade it. Right click on the Facebook tab under the Market Watch, and click on Chart Window to display the Facebook chart.
This now gives you the option of trading Facebook from the chart. You now have two order options:
- You can repeat the process by clicking the Facebook tab under Market Watch, then click on “New Order”. This opens the dialog box where you can enter the trade parameters such as the number of units to be purchased, stop loss and take profit settings.
- You can trade directly from the chart using the Sell/Buy tab located on the top left corner of the Facebook chart. Here, you can only enter the number of units being purchased, as well as Buy order or Sell order at the listed market prices. You have to enter the stop loss and take profit settings from the active trade section in the terminal window.
You also have the option of choosing the Market Order (for instant execution at market prices) or the Pending order types (delayed execution at the price you want).
Step 4B: Using an MT5 Robot
Robots for MT5 platform are coded using C#, which is a different coding language from the MT4 platform. To use the MT5 robots, you must trade on the desktop version. Download the MT5 platform from the XM website, then click on File -> Open Data Folder. This displays the data folder of the MT5 on your computer bottom menu. Click on MQL5 -> Experts, then copy and paste the .mq5 file of your robot into the Experts subfolder. Restart your MT5 platform by closing and opening it again, and the robot is ready for use. Attach it to the chart of Facebook and allow it pick trades as it has been programmed to do.
Do you want to trade Facebook shares on XM? Here are the pros and cons of using XM for your Facebook trades.
- Account opening process is quick.
- XM is located in several jurisdictions, with different offerings for traders in different locations.
- XM is a regulated brokerage.
- Different platforms are available, which allows flexibility in trading.
- Low minimum deposit (200 euros)
- Wide range of payment methods
- Free and unlimited demo account.
- Good market research suite.
- Facebook only available on MT5.
- Automated trading is only possible on the desktop version of MT5.
Projection for Facebook Stock for Rest of 2019
Most of Facebook’s fundamentals will be driven by how it handles privacy issues within its platform as well as the goings-on with its proposed Libra cryptocurrency.
Here are some frequently asked questions about trading of Facebook stocks.
What is a Stock CFD Contract?
A stock CFD contract allows a trader to buy or sell a stock from a dealer without taking physical ownership of that stock. The trader is merely buying or selling a contract, based on the price movements of the underlying asset in its listed exchange, which for Facebook is the Nasdaq or Tech100 index.
How can I recognize the symbol of Facebook on any of these platforms?
Simply type the word “FACEBOOK” in the space provided for the assets, and you will see a pop-up box displaying the full contract for the Facebook CFD asset.
I tried to trade Facebook and a message said the market is closed. What are the trading hours for trading Facebook?
Facebook stocks are traded when the Nasdaq100 index is open for business. This is between 1.30pm GMT and 8.30pm GMT.
Does my Facebook trade expire like commodity contracts?
The Facebook CFD contract does not have an expiration date. The trade will remain open until the stop loss or profit targets are reached, or until the trade is closed manually by the trader.
How much do I need to trade 1 contract of Facebook?
It depends on the platform you use. If you trade the Facebook CFD on any EU or UK platform (Forex.com, eToro Europe or XM Europe), the margin requirement is 20%. If you trade with XM Belize or Australia, the margin requirement is 1%. Each platform also has a trade minimum. Refer to the specific broker platform for details.
Can I hold positions overnight on Facebook stocks?
You are allowed to leave open positions overnight. You may be charged a rollover fee for doing this.
What happens to my open position on Facebook during public holidays?
All active positions will remain open and will be rolled over to the next trading day.
Can I trade Facebook with a robot?
You can trade Facebook stocks with a robot if your broker offers the MT5 desktop platform (XM and Forex.com).