Should I invest in Spotify?
Spotify Technology is a Swedish company whose product is the well-known music player application that bears the same name of the company: Spotify. Launched in 2008, the application has become one of the most widely used, accumulating more than 340 million users worldwide.
From the beginning, Spotify was presented as a multiplatform application that was available for Windows, Mac Os, Linux, Symbian, IOS and Android. With this, Spotify was guaranteed a fast diffusion among music lovers as they could have the application always with them, both on computers and cell phones.
Spotify offers its users more than 35 million song titles that they can listen to as on the radio via streaming. And it also offers users the possibility of using the application for free or subscribing to the premium service.
The difference is that the free accounts have some limitations, in addition to having advertising between songs. Unlike the premium ones that do not have any limitations or advertising.
In this way, Spotify generates money with both types of account because with the free account it obtains income from advertising while with the premium accounts it obtains income from subscriptions. Being the subscriptions its main business and major source of income as it has more than 155 million users who pay the subscription.
In its business model, the company keeps 30% of the revenues while the remaining 70% is distributed among the artists. This is based on a formula that distributes the money in relation to the number of plays accumulated by each singer.
It went public only on April 3, 2018, so its history listed on the New York Stock Exchange is quite short. However, this has come to offer a return of more than 200% between highs and lows making it an ideal stock for those who know how to take advantage of volatility.
In general, Spotify is a company with a great future given the segment to which it is dedicated, music. This is a sector that grows and adapts on its own and Spotify is only the medium through which it is disseminated, remaining completely outside of what happens in the music industry. And although so far it does not pay dividends, it is not ruled out that in the future it will do so.
What are the assets you can trade?
What is an ETF?
Have you heard about Exchange-traded funds or ETFs? They are similar to index funds and are known for combining the benefits of stocks and mutual funds: they can be exchanged regularly at market price, but include a much wider diversity of assets and considerably lower fees.
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 to make a profit through the operation.
If you decide to trade the EUR/USD pair, you speculate how many dollars it will take to buy a euro, anticipating that after obtaining the first currency (the euro) it will revalue compared to the second (the dollar), to make a profit by selling it. Let's say you entered when the price of one euro is 1.10 USD and you leave when a euro is worth 1.15: that difference is yours once you make the operation.
Perhaps you already deducted this, but trading with foreign exchange usually implies investing a lot, since fluctuations are typically low, or using a lot of leverage, which could be incautious. In case you are new to the world of trading, it is not a good idea to begin with the currency market, because it's not the safest option.
This broker allows trading with the most known currency pairs. However, consider that this market functions with CFDs, so you will not own the underlying asset.
About Contracts for Difference
If you already registered on this broker, you must have seen how the acronym CFD appears all the time. Before we explain this further, you should know that cryptocurrency trading on this broker is only CFD if you short sell or leverage above x2 (nevertheless, the platform does not even allow this option).
We will also refer to concepts like leverage and “going short”, in case you are interested in day trading cryptocurrency or other more advanced operations.
this broker allows you to bet both “in the black” and “in negative”. In a hypothetical case: you are sure that the Spotify will fall, so perhaps you consider that the best thing to do is wait until it does and then go in. Nevertheless, if it really falls, it might mean extra money for you.
You can accomplish that by “going short”. Here's how it works ,roughly:
- Someone lends you, let's say, 100 units of Spotify, with a total value of $ 5,000 (these numbers are imaginary)
- Next, you sell them at their price at the moment, $ 5,000
- The Spotify devaluates from $ 50 to $ 30
- You purchase the 100 units again, but at $ 3,000
- You give back the 100 units
- The $ 2000 difference is yours
Keep in mind that it is much simpler than it sounds: we can summarize this whole operation by saying that by trading in Spotify you can also make money if you anticipate the downs.
In case you still don't know what “leverage” is, we'll describe it briefly. When trading, it's the capacity of multiplying your investment by borrowing money from the broker. For example, you can enter with $ 100, but if you use x2 leverage, you will be investing $ 200.
Why using leverage and how to do it
Assuming that, for instance, you are sure that Spotify price is going up, and that you have $ 1,000 for “going long”, you must know that you have the option of investing more and making more money.
There's the possibility of asking for a credit, but you must know that all the process takes time, and by the moment you finally get the money, Spotify might be already at a much higher price, so you wouldn't be able to invest the way you planned.
With leverage, you can obtain that amount with two clicks. It's just like a loan, but much better: from the broker itself. You can get financing to operate with much more money than you actually 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 even more leverage. This is because cryptocurrencies regularly represent medium-long term investments. However, leverage is used primarily for day trading or short-term trading. But let's deepen a bit more on how all this works:
- 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 Spotify price does increases, as you thought, and now the cost of your investment is $ 2,400 (20% higher), so you decide to sell back.
- The $ 1k of leverage will be deducted, and 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.
Still wondering where the catch is? The thing is, it can also play against you. If everything goes according to plan and the price goes up, you will earn more money in less time; but if the value of the asset goes down, you will also lose more in less time.
Let's suppose 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. That is why to operate with leverage it is essential to be familiar with other two terms: Take Profit and Stop Loss.
Take Profit is an automatic order of selling once the asset achieves a certain price: you buy Spotify shares at $ 100 and you ask your broker to close your operation 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 the price has risen, you might consider you can earn even more, which is not always the case. Consequently, you might lose money if you don't close on time. So, Take Profit helps you reduce risks when trading.
Stop Loss is even more necessary, especially if you use leverage, since a small loss with leverage can have a significant impact. Take into account that the broker will recommend a limit for Stop Loss, but it is better to place it closer to current price than that.