Is Walmart a buy?
Walmart, founded in 1962 by Sam Walton, is an American company that owns chains of discount department stores and warehouse clubs. Its main business is the retail sale of mass consumer goods of all kinds.
Its founder, created the company to offer quality products at very low prices in order to obtain a large volume of trade. The idea was to compensate precisely for the low prices so that the company could sustain itself and generate profits.
His idea paid off immediately, because from the very first year, Walmart had a large volume of sales that increased year after year. And along with its sales volume, what also grew year by year was the number of stores the company owned.
Thus, with such a simple business idea, Walmart went from being a warehouse in Arkansas with a few employees, to owning more than 10 thousand stores represented in some 60 different brands in 28 countries and with about 2.2 million employees worldwide.
And this without changing its business model, which is still the same today: sell cheap to sell more. Although what it has done is to reach agreements with manufacturers to provide it with products to market under its own brands.
Walmart and the stock market
The company has been listed on the New York Stock Exchange NYSE since 1970 and since then, as the company's growth and expansion, its share price has not stopped growing. Especially in the last 10 years, when it has experienced a bullish rally regardless of the state of the economy.
Although the truth is that this is very predictable since it is a company that generates and increases its profits year after year. And behind this is the fact that their main source of revenue is what they call “groceries”, which are food products.
Knowing a little of its history and with the awareness that food products will always be the first necessity, it is easy to foresee that Walmart's behavior will remain the same in the future, that is to say, in frank growth.
Therefore, if you are looking for companies to invest in that have a good track record of performance and excellent future prospects, Walmart is one of the companies to consider.
Financial instruments that exist
What is known as Forex trading consists in the exchange of currencies. It is the conversion between currencies to make a profit through the operation.
If you decide to trade the EUR/USD pair, for instance, you buy euros at their price in dollars, expecting 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, you'll be earning that margin.
You may be thinking by now that this form of trading requires investing considerable amounts, and that is correct, since fluctuations are usually minimal, and often you will need to use high leverage (which sometimes can be too much of a risk). Our advice for those starting in the world of trading is to choose another market to begin with, since Forex is risky and complex.
This broker allows exchanging the most popular currency pairs. Still, take into consideration that Forex works through CFDs, so the underlying asset won't be yours.
About Contracts for Difference
If you already accessed this broker, you probably realized that the acronym CFD appears frequently. We will come back to it, but first, you should know that CFDs on this broker are only possible when you go short or leverage above x2 (although the platform does not even allow this option).
In case you want to know about day trading cryptocurrency and other more advanced practices, you will also meet terms like short-selling and leverage.
Even if you don't have a positive balance, you can still bet on this broker with CFDs. For example: you are sure that the Walmart will go down, so probably you think that the best thing to do is wait until it does and then go in. But if it really goes down, it is possible to earn some money out of that.
You can accomplish that by “going short”. Here's how it works:
- You obtain from a loan 100 units of Walmart, valued at a total of $ 5,000 (these are completely imaginary numbers)
- You sell the 100 units at $ 5,000
- As you supposed, the price falls, and the unit of Walmart now costs $ 30 instead of $ 50
- You obtain the 100 units again, but at their current price, $ 3,000
- You pay back the 100 units to the loaner
- You keep the $ 2000 difference!
Take into account that it sounds much more complicated than it is: we can just say that by trading in Walmart you can also make money if you predict it will go down.
How does leverage work
If you still don't know what “leverage” is, we'll describe it briefly. When trading, it's the capacity of enlarging your investment by borrowing money from the broker. For example, if you start with $ 100 and you use x2 leverage, you will be investing $ 200.
Leverage and the importance of “Take Profit” and “Stop Loss”
Assuming that, for instance, you are certain that Walmart price is going up, and that you have $ 1,000 for “going long”, you must know that you can increase your investment and make more money.
You could consider asking for a credit, but it is a process that takes time, and when you receive the money, Walmart might be already so expensive (if your guess was right) that trading wouldn't be convenient anymore.
Using leverage, you can obtain that amount really easily. It's just like borrowing money, but much better: from the broker itself. You can get financing to operate with much more money than you actually have on the the broker wallet. Before trading, you will how much leverage to use as in the image:
Within other markets, the leverage you can choose is higher. This is because leverage is regularly for short-term operations, and cryptocurrencies tend to be a medium or long-term investment. Let's talk a bit more about how leverage works.
If you have the $ 1,000 and choose leverage x2, your investment is 2 * $ 1,000, that is to say, $ 2,000. The broker would be “loaning” you the extra $ 1,000.
A few days later, as you predicted, Walmart price has risen by 20% and your money has appreciated reaching $ 2,400. Ok, don't be greedy, let's sell.
First of all, the 1k $ of the leverage will be deducted. You have $ 1,400 left, of which $ 1000 was yours initially, so the net profit is $ 400.
In conclusion, by investing $ 1000 you can make a profit of 40% (in the case you earn $ 400). That is pretty decent.
But watch out: if everything goes ok and the price rises, you will make profits. However, if the asset decreases, you will also lose more money in the blink of an eye.
For example: if instead of increasing by 20%, the price falls by 10%, you won't lose $ 10, but twice that figure, which means $ 20. That is why the concepts of Take Profit and Stop Loss are crucial when operating with leverage.
Take Profit is a limit you can set when trading: you set the platform to sell your assets once they get to a point above the entry price. For instance, you can buy Walmart shares at $ 100 and ask your broker to close your position automatically when it goes up to $ 120. It is very useful to avoid being blinded by greed: we would all accept a 20% profit when making the investment, 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 got assured in advance of not doing anything dumb in the future.
Stop Loss is even more necessary, especially when operating with leverage, since a small loss could have a significant impact. Consider that your broker will recommend a limit for Stop Loss, but it is better to place it lower than that.