How to trade Facebook shares

How to trade Facebook shares

You can trade Facebook shares using derivative products such as contracts for difference (CFDs). This is different to share trading in that you do not own the physical shares, you simply speculate on the price movements of the underlying asset by going long or short.

Derivatives use leverage, which means you don’t need the full value of the shares upfront, instead you’ll put down a deposit – called the margin. With CFD trading, your profit or loss will be based on the full value of your position. This means both profits and losses may be magnified compared to your initial deposit.

CFD trading on Facebook shares

When you trade CFDs on Facebook shares, you are speculating on whether the share price will go up or down. If you think it will rise, you’d go long and if you think it will fall, you’d go short. With CFDs, you exchange the price difference between opening and closing your position.

Find out more about how CFD trading works

A brief history of Facebook

In 2003, a student of Harvard University - Mark Zuckerberg - unknowingly launched his career into becoming one of the most influential people in history. It all started when he designed an online service called Facemash. The service was shut down by university officials after just two days, but Zuckerberg got the traction he needed. Almost immediately after the shutdown, he started planning and coding Facebook with Dustin Moskovitz and Eduardo Saverin, which launched as ‘The Facebook’ in February 2004. By the end of the year, it had one million users.

Between 2005 and 2011, a lot of business development happened for Facebook. It secured the official facebook.com domain, and expanded its reach, functions, teams and physical locations. It hired Google executive Sheryl Sandberg and also received financial boosts from organisations such as Accel Partners and Microsoft.

In April 2012, Facebook acquired Instagram and a month later it held its initial public offering (IPO) – ending the first trading day with a valuation of $104 billion. This was slightly higher than the $77 billion to $96 billion valuation it had been predicting. Facebook stock was listed at $38 a share, but after a week of trading, the price fell to less than $27. The drop was attributed to a lack of investor confidence in the stock and disappointing first quarter (Q1) results. This was the same year that Facebook reached one billion users.

A lot of product development took place over the next five years, making Facebook more popular and pushing the share price over the $100 mark. However, the focus shifted to more legal troubles in 2017 as Facebook’s policies came under scrutiny for issues related to fake accounts and user privacy. In 2018, Zuckerberg attended his first congressional hearing on Facebook’s data privacy. The turbulence in the business caused Facebook shares to drop from $184 to $153 in March 2018. It recovered in July, reaching $214, but then fell dramatically to $124 by the end of the year. Since then, Facebook has committed thousands of personnel to work on the platform’s safety and security.

In June 2019, Facebook announced the launch of its cryptocurrency, Libra. The share price experienced a slow upward movement from $187 to $188 a day after the announcement was made.

Facebook shares: the basics

Facebook shares are listed on the NASDAQ 100 (US Tech 100 with IG) under the ticker FB.

Although Facebook does not have a lot of direct competition, there are other players in the market that may influence its popularity – including Snapchat, Twitter and Pinterest. However, because it owns so many other social media channels, Facebook still has the biggest market share.

The majority of its shares belong to institutional investors and key figures in the Facebook sphere, including Zuckerberg, Sandberg, Moskovitz and Saverin. Chief technology officer Michael Schroepfer and WhatsApp’s chief executive officer (CEO) Jan Koum also hold Facebook stock.

Facebook key personnel: who manages the company?

There are four members on Facebook’s management team:

Facebook also has a board of directors, which consists of eight members and includes Zuckerberg and Sandberg.

What is Facebook’s business model?

Facebook’s business model is based on providing its platform to users for free in exchange for data, which allows them to deliver targeted advertising through Facebook’s news feed. Companies pay Facebook to have their ads delivered to a very targeted audience, and this is how Facebook makes money.

Facebook does not sell user data to any third party, they only use a personalised algorithm to deliver the most suitable ads to Facebook users.

It has secured additional digital businesses over the years, leading to a five-pillar model that includes Facebook itself, Instagram, Messenger, WhatsApp and Oculus.

Facebook has made a promise to its more than 2.3 billion users that the platform will always be free to use – even when it was urged to charge for its offering after the privacy concerns of 2017 to 2018.

Facebook fundamental analysis: how to analyse Facebook

Fundamental analysis is the study of a company’s financials, including external factors that may affect these figures. It’s important to do thorough fundamental analysis before buying or trading Facebook shares. You can estimate Facebook’s share value by using popular fundamental analysis metrics, such as the price-to-earnings (P/E) ratio and the return-on-equity (ROE) ratio.

Facebook’s price-to-earnings (P/E) ratio

A price-to-earnings (P/E) ratio is one of the most popular valuation metrics, which defines how much you have to spend to make $1 in profit. It is calculated by dividing a company’s market value per share by its earnings per share. A high P/E ratio could indicate that shareholders are expecting earnings to rise, or that the stock is overvalued. Traders and investors should always compare P/E ratios of the company they are interested to that of its competitors.

Facebook’s ROE

ROE is another good measure of Facebook’s financial standing, indicating how much income it is making on its assets relative to its shareholder investments. To calculate ROE, you’d divide Facebook’s net income by its stakeholder equity. A high ROE could mean that Facebook’s shares are undervalued.

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