How to invest in Facebook from the UK

What does Facebook do?

Facebook, beyond the famous social network, is a company that is part of the group of the Big 5 of technology along with Alphabet (Google), Amazon, Apple and Microsoft. And in addition to the social network Facebook, with almost 3 billion users, the company owns Instagram and WhatsApp.

The social network Facebook has long remained the most used social network. And WhatsApp, Facebook Messenger and Instagram are not far behind in the ranking as they are only surpassed by YouTube, which ranks second. So, Facebook (company), there is no one to take it out of the big 5 or dethrone it as the number one social network.

All this is well known and many people invest in the company just for this. But Facebook also has other projects that are little known and that can have a great impact for the company. Among them, the most relevant surely is the cryptocurrency Libra, which became a stablecoin called Diem.

The Facebook cryptocurrency: from Libra to Diem

Initially, Facebook announced in June 2019 its intention to create a cryptocurrency that would be integrated into its products (Facebook, Facebook Messenger, Instagram and WhatsApp). This with the intention that users could have a secure and very cheap form of payment in their accounts. This is how Libra was born.

However, this announcement alarmed many countries because as we know, cryptocurrencies are decentralized and cannot be regulated by governments. So many were directly and openly against the company's initiative. Mainly because of the fear that the cryptocurrency would destabilize economies given the number of Facebook users.

After complying with many legal requirements demanded by some countries (including the United States) in which basically mechanisms were agreed to avoid destabilizing the economy and that the State can maintain control of fiscal and monetary policy, Facebook can bring its cryptocurrency to the market, only now it is called Diem.

In addition to the change from Pound to Diem, it is now a stablecoin backed entirely by circulating money. Its value, unlike other stablecoins such as Tether, does not fluctuate and always maintains a 1 to 1 relationship with the reference currency. And we say reference currency because it not only represents the dollar, but also the euro and the pound sterling, among others.

The best thing is that in addition to being Diem a stablecoin, it is backed by the company Facebook and many others among which Coinbase, Uber, Shopify and Spotify stand out. Undoubtedly, this is one of Facebook's greatest successes as a company and will undoubtedly have positive repercussions on its valuation.

Financial assets you can trade

Meet the Exchanged Traded Fund

What do you know about Exchange-traded funds or ETFs? They are passively managed funds, known for merging the advantages of stocks and mutual funds, because they can be exchanged at any moment in the market, but offer much more diversity and the fees are significantly lower.

About Index Funds

If you are interested in long-term investments, and you won't need to take back your money in five years or maybe a decade, index funds can be the best choice. This type of investment is also suitable for beginners since the risks are lower.

Contrary to common perception, it is very hard to beat the market (yes, you have surely heard of managers who obtain huge returns).

But putting aside some remarkable cases, not everything is as good as it sounds: when someone brags about having beaten the market, they have probably done so for a short time, or the rates are so high that it ends up being better for you to index (whit minimal commissions). Besides, if something happened once or twice, it doesn't mean necessarily that it will happen again in the future.

Index funds offer solutions to both concerns: their fees are insignificant and in the long term they almost always beat active managers.

Foreign exchange

Forex or currency trading is the exchange between a pair of currencies.

If you decide to trade EUR and USD, for example, you buy euros and pay with dollars, expecting that the euro will raise its price compared to the dollar. Then, if you purchased each euro at 1.15 USD and you sell them back when they cost 1.20 USD, you'll be keeping that difference.

You may be thinking by now that trading with currencies requires high investments, and that is correct, because fluctuations are usually minimal, and if you use a lot of leverage to counter that, you will take a considerable risk. Our recommendation for those who are new in the world of trading is not to start with Forex, but with a safer and simpler market.

This broker allows trading with the most usual currency pairs but remember that Forex trading works through contract for differences, therefore you won't own the real asset.

About Contracts for Difference

You probably have found the term CFD repeatedly if you entered this broker before. Before we come back to this, you should know that cryptocurrency trading on the platform is only CFD when you are short-selling.

We will also refer to terms such as short-selling and leverage, in case you are thinking about day trading cryptocurrency or other more advanced practices.

With CFDs you can bet on the platform even if you are not “in the black” or having a negative balance. In a hypothetical case: you are sure that the Facebook will fall, so probably you consider that the best thing to do is refrain from getting in until it does. Nevertheless, if you are convinced that it is going down, why not making some profits?

You can do this through what is known known as “going short” which consists in something like this:

  • You ask someone for a loan of, let's say, 100 units of Facebook, which total price at the moment is $ 5,000 (obviously, these numbers aren't real)
  • Then, you earn $ 5,000 by selling them at the market price
  • The Facebook goes from $ 50 to $ 30 (as you calculated, the price decreases)
  • You purchase the 100 units again, but at $ 3,000
  • You return the 100 units
  • The difference is yours, so, you will have earned $ 2000

It is really simple. Just take into account that by trading in Facebook on this broker, you can make a profit when you anticipate the price will fall.

Trading with leverage

In case you still don't know what “leverage” is, we'll put it short. When trading, it's the capacity of increasing your investment without putting extra money. That way, if you start with $ 100 and you use x2 leverage, you will be investing $ 200.

Why using leverage and how to do it

Let's pretend that you have complete certainty that Facebook will raise its price, and you want to “go long”, but you only have $ 1,000 available. However, it is possible to put more and earn higher profits.

You could consider asking for a loan at your bank, but it is a process that takes time, and when you receive the money, Facebook might be already at a much higher price, so you wouldn't be able to invest the way you planned.

Leverage is exactly like a loan, but it is only a few clicks away! You will be able to invest (and earn) much higher amounts than what you actually have on the platform's wallet. It is simple, before investing you will see the different options as in the image below:

apalancamiento

With other assets, you can use more leverage. This is because cryptocurrencies are usually medium-long term investments. However, leverage is used mainly for short-term operations or day trading. Let's talk a bit more about how leverage works:

  • If you want to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 ($ 1,000 are a “loan” from the broker). 
  • A few days later, Facebook price does increases, as you thought, and now the cost of your investment is $ 2,400 (20% higher), so you decide to sell back. 
  • Once the $1,000 from leverage is deducted, you will have $ 1,400 left; which means the net profit is $ 400, since the other $1,000 was yours from the beginning.

In conclusion, by investing $ 1000 and obtaining $ 400, your net profit would be 40%. That is pretty decent.

But watch out: if all goes as you intended and the asset increases, you will make money. On the other hand, if the price falls, you will also lose more money in the blink of an eye.

For example: if instead of increasing by 20%, the price falls by 10%, you do not lose $ 10, but twice (the leverage) that figure, that would be $ 20. Therefore, when using leverage it is essential to know two other concepts: Take Profit and Stop Loss.

Take Profit is the automatic order to sell once the asset is above the entry price: you purchase Facebook shares at $ 100 and you ask your broker to close your operation as soon as the price reaches $ 120. It is very helpful to avoid being blinded by greed: we would all accept a 20% profit in the beginning, but when you reach that 20% it is easy to ask yourself “what if this keeps increasing and it is a mistake to exit?”. It's like you got assured in advance of not doing anything dumb in the future.

Also, if you use leverage you absolutely need to place a Stop Loss order (take into account that any small loss is greater with leverage). Take into account that the broker will recommend a limit for Stop Loss, but you should place it closer to current price than that.