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.
What assets can you trade?
What do you know about Exchange-traded funds? They are passively managed funds, known for merging the advantages of stocks and mutual funds, because they can be exchanged regularly at market price, but include a much wider diversity of assets and the fees are significantly lower.
About Index Funds
This is the best option for people who can invest in the long term, mostly for those who are starting to trade, because it is inexpensive, diversified, and safer.
Unlike a lot of people think, benchmark returns are very difficult to beat and very few fund managers achieve that, apart from some famous cases.
If a fund manager brags about having beaten the benchmark, they probably have done it for a chor period or on particular occasions, or perhaps the charges are so high that indexing would be a better decision (with minimal commissions).
The great advantage of index funds is that they perfectly solve both issues: their commissions are minor and they beat active managers most of the time, although in the long term.
Foreign exchange trading or Forex consists, as the name says, in the exchange of currencies. It's the conversion between two currencies, and the aim is, evidently, to obtain a benefit out of this.
If you decide to exchange the EUR/USD pair, for instance, you speculate how many dollars it will take to buy a euro, expecting that the euro will increase 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, you'll be keeping that margin.
Perhaps you already deducted this, but operating with foreign exchange requires a large capital, since fluctuations tend to be low, or using much leverage, which is a bit like skating on thin ice. Our recommendation for those starting in the world of trading is to choose another market to begin with, since Forex is risky and complex.
Most currencies are available on this broker but consider that this market functions with contract for differences, thus you will not be the owner of the real asset.
How do Contracts for Difference work?
It is possible that you have seen the acronym CFD repeatedly if you entered this broker before. Before we come back to it, we must say that cryptocurrency trading on the platform is only CFD when you go short or leverage higher than x2 (nevertheless, the platform does not even allow this option).
In case you are interested in day trading cryptocurrency and other more advanced practices, you will also find information about terms such as leverage and “going short”.
The advantage of this broker is that it allows you not only to bet if you are “in the black”, but with CFDs you can also bet “in red”. For instance, you are sure that the Facebook will go down, so you clearly think “if it is going to depreciate, I simply refrain from getting in and I'll go in when it has gone down”. Nevertheless, if you are convinced that it is going down, why not take advantage of that and making money?
You can accomplish that by “going short”. More or less, this is how it works:
- They lend you, for example, 100 units of Facebook, with a total price of $ 5,000 (these numbers are fictional)
- You make $ 5,000 by selling the 100 units
- The Facebook goes from $ 50 to $ 30 (as you presumed, it devaluates)
- You get the 100 units again, but at their current price, $ 3,000
- Now you pay back the 100 units to whoever made the loan
- The difference is yours, so, you will have earned $ 2000
Consider that it is much simpler than it sounds: we can summarize this whole operation by saying that by trading in Facebook you can also make money if you anticipate it will go down.
How to use leverage when trading Facebook
If you still don't know what “leverage” is, we'll put it short: it is the ability to use a higher amount than you actually have. For example, if you start with $ 100 and you leverage x2, your initial investment will be $ 200.
Leverage and the importance of “Take Profit” and “Stop Loss”
Let's say that you are confident that Facebook will rise, and you consider “going long, but you only have $ 1,000 available. However, it is possible to put more and earn higher profits.
You could consider requesting a loan at your bank, but you must know that all the process takes time, and when you receive the money, Facebook might be already so expensive (if your guess was right) that trading wouldn't be convenient anymore.
Leverage is like a loan, and you will only have to click a few times to get it! You will be able to operate with much higher amounts than what you actually have on the platform's wallet. As in the image below, you will see the different options you have:
Trading with other assets allows you to use even more leverage. This is because cryptocurrencies usually represent medium-long term investments, and leverage is used especially for day trading or short-term operations. Let's talk a bit more about how leverage works:
- If you decide to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 (remember that$ 1,000 was borrowed from your 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 because you want to play it safe.
- Once the $1,000 from leverage is deducted, you will have $ 1,400 left; which means you've earned $ 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 quite good.
The trick is that the risk of losing out is also there. If everything goes as you planned, you will earn profits in little time; but in the opposite case, you will also lose more really fast.
Supposing that the price 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 very important to know two other concepts: Take Profit and Stop Loss.
Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price.
If you bought Facebook shares at $ 100, you program the broker to close once it reaches $ 120. That way, you make sure you won't change your mind and decide to wait a bit longer in case it keeps rising, which could be a mistake.
On the other hand, when using leverage you should always use Stop Loss, because a small decrease in the price of an asset can lead to a substantial loss. You always need to mark a Stop Loss more conservative than that suggested by the broker.