How to invest in Zynga from the UK

Zynga business model

Zynga is a multinational company in the video game sector whose market niche is focused on web social games. Founded in 2007, in its beginning it had a great boom thanks to its alliance with Facebook, where users of the platform had access to the games.

Many of these games were truly iconic, surely you will have played some of them or at least the name will ring a bell. Among the best known are FarmVille, CityVille, Mafia Wars, and CastleVille, having a large number of users on Facebook.

Currently, Zynga has its own web platform where it offers its games separately from Facebook, although some of them are still present in the social network. In them we can find that the company states that it has offices in Canada, United Kingdom and India, in addition to the United States.

Likewise, they also state that currently more than one billion people have played their games both on their website and on Facebook or any mobile platform. This is of vital importance when we analyze its business model.

According to the platform, its most popular games are FarmVille, Zynga Poker, Words with Friends and CSR (a car game). Although these are quite old, it also has more up-to-date titles such as a game based on Harry Potter and another on Games of Thrones.

Zynga's business model

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Their way of generating money is very simple, they create an addictive game and publish it for free, but with some limitations that only disappear if the user pays.

An example of this are the games in which, if the user loses, he must wait a certain time to play again. But if the user pays a small sum of money, he does not have to wait this time, but can continue playing immediately.

In addition, there is the income from real money gambling games in which he usually earns a commission. Although in this case Zynga is as if it were a casino and therefore applies the rule “the house always wins”.

Zynga as an investment

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Its share price is quite low and the stock has some peculiarities.

The first and most salient is that its stock market performance the last 5 years has far outperformed the growth of the SP500 and the NASDAQ Composite Index.

The second is that, in the same period of time, although the company has had a constant growth with little volatility, the accumulated return is more than 500% and still has the possibility of continuing to grow.

And obviously, this has put Zynga in the eye of investors looking for companies with good long-term returns in the market.

What types of assets can you trade?

Exchange-Traded Funds

ETFs or Exchange-Traded Funds are a type of passively managed fund, similar to index funds. They can be described as a combination of stocks and mutual funds, including the best of both. They can be traded like regular stocks, but include a wide diversity of assets and their commissions are much lower than those of an actively managed fund.

About Index Funds

This is the best option for people who can invest in the long term, mostly for beginners, because it is less expensive, diversified, and the risk is lower.

Contrary to common perception, very few fund managers can beat the index (yes, you have probably heard of investors who obtain huge returns).

But putting aside some unusual cases, not everything is as good as it sounds: if you hear of someone who has beaten the benchmark, they have probably done so for a short time, or will charge you so many commissions that it ends up being better for you to index (whit minimal commissions). Also, take into account that if something happened in the past it doesn't necessarily represent a regular behavior.

The great advantage of index funds is that they solve both issues: their fees are insignificant and they beat active managers most of the time, although in the long term.

Forex trading

Forex or currency trading allows obtaining profits by converting one currency for another.

If you decide to trade euros and dollars, for example, you speculate how many dollars it will take to buy a euro, with the expectation that the euro will rise compared to the dollar. Then, if you bought each euro for 1.15 USD and you sell them back when their price is 1.20 USD, that margin will be yours.

You may be thinking by now that operating with currencies requires investing considerable amounts, and you're right, because fluctuations are usually minimal, and often you will need to use a lot of leverage (which sometimes can be too much of a risk). Our recommendation for those starting in the world of trading is to choose another market to begin with, since Forex is risky and complex.

You can trade with almost every popular currency on this broker but keep in mind that Forex trading works through contract for differences, thus you will not be the owner of the real asset.

What are Contracts for Difference?

It is possible that you have seen the term CFD more than once if you entered this broker before. We will explain exactly what this means, but first, you should know that cryptocurrency operations on this broker are only CFDs when you are short-selling or leverage higher than x2 (nevertheless, this is not even an option on this broker).

For the record, and if you are thinking about day trading cryptocurrency or other practices, later on you will also meet concepts such as going short and leverage.

this broker allows you not only to bet if you are “in the black”, but through CFDs you can also bet “in negative”. For example: you have the conviction that the Zynga will go down, so perhaps it is obvious to think “if it is going to depreciate, I simply refrain from getting in and I'll go in when it has gone down”. However, if it really falls, it might mean extra money for you.

The practice known as “going short” will allow you to do that. It functions, more or less, as it follows:

  • Someone lends you, for example, 100 units of Zynga, with a total price of $ 5,000 (these are completely imaginary figures)
  • You make $ 5,000 by selling the 100 units
  • As you supposed, it devaluates, and the unit of Zynga goes from $ 50 to $ 30
  • You buy all 100 units one more time, but at the current value, $ 3,000
  • You pay back the 100 units
  • The $ 2000 difference is yours

It all seems more complicated than it really is. Just remember that by trading in Zynga on this broker, you can make a profit if you anticipate downs in the price.

What is leverage?

Do you know what leverage is? We'll put it simply: the good thing about trading is that it lets you invest even more than what you really have. Let's say that you have $ 100 and you choose to leverage x2, the amount of your investment will be $ 200.

Leverage, Take Profit and Stop Loss

Let's say that you are confident that Zynga will raise its price, and you consider “going long. You have $ 1,000, but you actually can invest more and make more money.

You could go to your bank, request a loan, wait for it to be accepted and receiving the money, send the money to the broker, confirm that it arrived, and then purchase Zynga… However, when you finish doing all that, probably Zynga would be already at a much higher price, and investing wouldn't be a good idea at that moment.

Leverage is like a credit, 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. Before trading, you will be able to choose between the different leverage options as in the image:

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When operating with other assets you can use more leverage. This is because leverage is most common in short-term operations, and cryptocurrencies tend to be a medium or long-term investment. But let's see how leverage works:

  • If you decide to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 ($ 1,000 was “borrowed” from your broker). 
  • Then, turns out that Zynga price does increases, as you thought, and now the cost of your investment is $ 2,400 (20% more), so you decide to sell back because you want to play it safe. 
  • The $ 1k of leverage will be deducted, and you will have $ 1,400 left; which means the net profit is $ 400, since the other $1,000 was yours from the beginning.

By starting with $ 1000 and getting $ 400, you'll be earning 40% of your investment. That is pretty good.

It may sound too good to be true. The trick is that the risk of losing out also increases. If everything goes according to plan and the price goes up, you will earn profits in little time; but in the opposite case, you will also lose more really quickly.

Let's imagine that the asset didn't increase by 20%, but it decreased also by 20%, you won't lose $ 20 but double, $ 40. That is why to operate with leverage it is essential to be familiar with two other concepts: Take Profit and Stop Loss.

Take Profit is the automatic sell order that is above the entry price: you buy Zynga shares at $ 100 and you ask your broker to automatically close your position as soon as the price goes up to $ 120. It is very helpful to avoid being blinded by enthusiasm: a 20% profit is usually pretty good, but once you see it goes up, you might want to gain a bit more and decide to wait, but this could be a mistake. So, Take Profit helps you to trade more safely.

On the other hand, when using leverage you also have to use Stop Loss, because a small decrease in the price of an asset can have a big impact on your wallet. You always need to mark a Stop Loss more tight than that suggested by the broker.