Should I invest in NIO?
NIO is a company founded in China by entrepreneur William Li in 2014 that manufactures and markets high-end electric vehicles. At the time of its launch, this company caught the attention of other large companies that decided to invest in NIO and back it. Among them we can mention Lenovo, Tencent, and large investors such as Sequoia Capital.
Since its founding, NIO has grown so much that it currently has offices in Germany, the United States and the United Kingdom. But one of the most remarkable events was the IPO of its shares on the New York Stock Exchange in 2018, where the value of its shares has revalued up to 500%.
This company seeks to lead the way in the transition from internal combustion vehicles to electric vehicles, thus declaring war on Tesla. This has caused the existence of NIO to be framed within the confrontation between the United States and China.
But it should be clarified that NIO is not the only Chinese company producing electric vehicles. And although its goal is to produce intelligent electric vehicles and autonomous driving, it also has ideas that completely differentiate it from Tesla and the other companies competing in this sector.
What makes NIO stand out from its competitors?
NIO offers high-performance electric vehicles that have a range of more than 600 km. But this is something we can find in other electric vehicles from the Tesla brand.
What does set NIO apart is its charging systems, as the charge can be brought to wherever the vehicle is located. It does this with a van that is capable of providing charging for a range of 100km to two vehicles, and can also recharge Tesla vehicles. So, if a Tesla user does not have a Supercharger nearby, they can call NIO.
In addition, a recharging system that completely sets it apart from the rest is battery swapping. NIO has battery recharging stations where the discharged battery is replaced by a fully charged battery.
All this is done automatically and controlled by robots that carry out the whole process in less than three minutes. So NIO owners really care little or nothing about charging time, thus raising the company's service to a new level.
This service works on a subscription basis that users pay monthly and gives them access to the service. With the advantage of making vehicles cheaper by more than 8 thousand dollars, since users do not have to buy the battery but only subscribe to the service.
Small differences in the business model that in the future could tilt the balance towards NIO's side, making it a company that should always be taken into account.
What kinds of financial instruments can you trade?
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. They can be traded like regular stocks, but include a wide diversity of assets and have lower fees.
About Index Funds
Are the best option for those planning to invest for the long term, mostly for beginners. If you don't need an amount of money for the next five or ten years, index funds offer you variety and lower risks.
You may think differently, but 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 sometimes the rates are so high that indexing would be a better decision.
Index funds offer solutions to both concerns: their rates are minor and they frequently beat active managers, but in the long term.
Foreign exchange trading or Forex consists, as the name says, in the trading of currencies. In other words, is the conversion of one currency to another, and the aim is, evidently, to make a profit out of this.
If you decide to trade EUR and USD, for example, you speculate how many dollars it will take to buy a euro, with the expectation that after buying the first currency (the euro) it will increase compared to the second (the dollar), to make a profit by selling it. Assume you entered when the price of one euro is 1.10 USD and you close when it reaches 1.15: that difference is yours once you sell again.
Perhaps you already deducted this, but this type of trading requires investing a lot, since fluctuations are normally low, or using much leverage, which could be incautious. If you are a novice in trading, it is not a good idea to begin with the currency market, because it's not the safest alternative.
This broker allows exchanging the most common currency pairs but bear in mind that in Forex sales are made through contract for differences, therefore you won't own the underlying asset.
About Contracts for Difference
It is possible that you have found the term CFD now and then if you already registered on this broker. Before we explain what this is, we must say that cryptocurrency operations on this broker are only CFDs when you short sell or select leverage higher than x2 (although this is not even an option on this broker).
We will also explain terms such as leverage and “going short”, in case you are thinking about day trading cryptocurrency or other more advanced practices.
Even if you don't have a positive balance, you can still operate on this broker with CFDs. For example: you believe that the NIO will go down, so probably you consider that the best thing to do is refrain from getting in until it does. However, if it actually goes down, you can make some profits out of that.
You can do that by “going short”. More or less, this is how it works:
- You ask for a loan of, let's say, 100 units of NIO, which total value at that moment is $ 5,000 (obviously, these numbers are made imaginary)
- Next, you sell them at their price on the market, $ 5,000
- The NIO goes from $ 50 to $ 30 (as you predicted, the price decreases)
- You purchase the 100 units again, but their total current value is now $ 3,000
- Then you give back the 100 units to the loaner
- You keep the $ 2000 difference!
Consider that it seems much more complicated than how this broker CFDs actually work: we can summarize this whole operation by saying that by trading in NIO you can also earn money if you foretell it will go down.
What is leverage
Do you know what leverage is? We'll put it simply: trading allows you to invest even more than what you really have. Let's say that you enter with $ 100 and you use x2 leverage, you will be really investing $ 200.
Why using leverage and how to do it
Let's say that you are confident that NIO will rise, and you want to “go long”. You have $ 1,000, but you actually can invest more and make more money.
Perhaps you could go to your bank, ask for a credit, put something as collateral, wait for it to be accepted, wait for the money, and then purchase NIO… But maybe once you have made all that, your prediction could've been confirmed a long time ago, and NIO would be already at such a high price that it is not worth investing.
Leverage is just like a credit, but it is only a few clicks away! your broker allows you to invest (and earn) 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:
With other assets, the ability to leverage is greater. The reason is that leverage is most common in short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. 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, NIO 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.
- 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.
As you can see, with $ 1000 you get $ 400, in other words, 40% more. Not bad, right?
Still wondering where the catch is? The thing is, you can also lose money. If everything goes according to plan and the price goes up, you will make more money in less time; however, if the value of the asset goes down, you will also lose more in less time.
Supposing that the asset didn't increase by 20%, but it decreased also by 20%, you won't lose $ 20 but $ 40, because of the leverage. Therefore, when using leverage it is essential to know about 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 NIO shares at $ 100, you program the broker to close once it reaches $ 120. That way, you make sure you won't be blinded by greed and decide to keep waiting in case it keeps rising, which could make you lose it all.
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). You always need to set a Stop Loss lower than that suggested by the platform.