Is JP Morgan a buy?
JP Morgan is a U.S. financial institution founded in 1871 from which originated the three largest banks in the world: JP Morgan Chase, Morgan Stanley and Deutsche Bank. Currently, when referring to JP Morgan, we are talking about JP Morgan Chase, which was born from the merger between the original bank and Chase Manhattan Corporation in 2000.
Chase Manhattan Corporation also has a long history, dating back to 1824 with the name of Chemical Bank. It was for several periods the largest bank in the United States in terms of both deposits and investments.
Since its foundation, Chemical Bank grew and merged with other banks, and in 1996 it acquired Chase Manhattan Corporation. It kept this name until 2000 when it merged with JP Morgan and formally became JP Morgan Chase & Co.
The merger of these two large banks gave rise to a giant that is considered the oldest financial services institution in the world. In addition to being the largest having as assets the astronomical figure of 3,689,336,000,000,000 dollars, that is, 3.6 trillion.
JP Morgan Chase as an investment
The phrase “too big to fail”, which has economic implications behind it, fully describes today's JP Morgan Chase. It is virtually impossible for this bank to fail, regardless of the state of the economy.
And if it did, it would be immediately bailed out by the U.S. government as has happened with other banks. This is because, given its size, it would have huge implications for the economy as a whole if JP Morgan Chase were to disappear.
However, as we have already said, it is practically impossible for this to happen because JP Morgan Chase, together with the FED, has bailed out other banks. Such is the magnitude and importance of this financial institution.
So, if an investor is looking for a company where his money is safe in every way, JP Morgan Chase is the best possible choice. Because to conclude, the shares of this company have good yields and pay dividends to its investors.
What assets can you trade?
About Index Funds
Are suitable for those interested in long-term investments, particularly for beginners. If you don't need an amount of money for the next five or ten years, index funds are the safest.
You may think differently, but benchmark returns are very difficult to beat and very few fund managers achieve that, apart from some famous cases, like Warren Buffett's.
In practice, if a fund manager achieves to beat the market, it is only for a short time or on a specific occasion. Or perhaps they would charge very high rates and indexing would be a better decision.
The great advantage of index funds is that they perfectly solve both issues: their commissions are insignificant and in the long term they almost always beat active managers.
Exchange-Traded Funds or ETFs are similar to index funds. They can be described as a merge between stocks and mutual funds. They can be traded like regular stocks, but include a wide diversity of assets and the rates are much lower than those of an actively managed fund.
What is known as Forex trading consists in the exchange of currencies. It is the conversion between two currencies to make a profit through the operation.
If you want to exchange euros and dollars, you purchase euros at their price in dollars, expecting that the euro will increase 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, that margin will be yours.
You may be thinking that this form of trading requires high investments, and you're right, because fluctuation in prices is never that dramatic, and if you use a lot of leverage to counter that, you will take a considerable risk. In case you are just starting in trading, it is not a good idea to begin with Forex, because it is very risky and intricate.
This broker allows exchanging the most usual currency pairs. Still, take into account that this market functions through contract for differences, which means the underlying asset won't be yours.
About Contracts for Difference
You probably have seen the initials CFD all the time if you entered this broker before. Before we come back to it, we must say that CFDs on this broker are only possible when you short sell or use leverage above x2 (but this is not even available on the platform).
For the record, and in case you want to know about day trading cryptocurrency or other trading practices, you will also meet terms like short-selling and leverage.
this broker lets you bet both “in the black” and “in red”. Let's say that you have the certitude that the JP Morgan will go down, so probably you think that it is better to wait until it does and then go in. But if it really falls, it might mean extra money for you.
You can accomplish that by “going short”. Here's how it works:
- You ask someone to lend you, for instance, 100 units of JP Morgan, which cost $ 5,000 at the moment (obviously, these numbers aren't real)
- You make $ 5,000 by offering them at their price in the market
- As you supposed, it depreciates, and the unit of JP Morgan goes from $ 50 to $ 30
- You buy the 100 units again, but at their current price, $ 3,000
- You return the 100 units
- The difference is yours, so, you will have earned $ 2000
Take into account that it seems much more tricky than it is: we can summarize this whole operation by saying that by trading in JP Morgan you can also earn money if you foretell the downs.
What is leverage?
Have you heard about “leverage”? Just in case, we'll define it shortly: trading allows you to invest higher figures than you can have in a given time. Let's say that you have $ 100 and you put them with x2 leverage, you will be really investing $ 200.
Why using leverage and how to do it
Let's say that you are confident that JP Morgan will raise its price, and you want to “go long”. You have $ 1,000, but you actually can invest more and make more money.
Possibly, you could ask a financial company for a loan, put an asset as a guarantee, wait for it to be accepted and receiving the money, send the money to your broker, confirm that it arrived, and then buy JP Morgan… But maybe once you have made all that, your prediction could've been confirmed already and JP Morgan price is at such a high price that it is not worth trading.
Using leverage, you can get that amount of money just by moving a finger. It's like borrowing money, but much better: you will get it from the broker, which allows you to invest a lot more than you have on the platform. It is simple, before investing you will see the different options as in the image below:
Trading with other assets allows you to use higher leverage. This is because leverage is regularly for short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. But let's explain how this works with the previous example:
- If you want to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 (remember that$ 1,000 are a “loan” from the broker).
- Then, turns out that JP Morgan price does rises, as you thought, and now the price of your investment is $ 2,400 (20% higher), 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.
But there's always a drawback. If all goes as you intended and the price goes up, you will make money. However, if the price goes down, you will also lose more money really fast.
Supposing that the asset didn't increase by 20%, but it went down also by 20%, you won't lose $ 20 but $ 40, because of the leverage. Because of that, the concepts of Take Profit and Stop Loss are so important when using leverage.
Take Profit is the automatic order to sell once the asset is above the entry price: you buy JP Morgan shares at $ 100 and you ask your broker to close your operation as soon as the price goes up to $ 120. It is very useful to avoid being blinded by enthusiasm: 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 going up and I can earn even more?”. It's like you made sure now of not acting recklessly in the near 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 it is better to set it lower than that.