How to invest in Xiaomi from Nigeria

Is Xiaomi a buy?

Xiaomi Corporation is a company of Chinese origin in the technology sector that manufactures and markets electronic equipment, the best known being its smartphones. But what really makes Xiaomi famous is the “value for money”, being Xiaomi itself that defines itself as “a global company that manufactures quality products at honest prices”.

It was founded in 2010 by Lei Jun and Lin Bin, with 2011 being the year when they launched their first smartphone in the Chinese market. This was the first big step of the company that from that moment on would have a history full of successes. And perhaps the first milestone was in 2013 when it surpassed Samsung and Apple in sales for the first time in China.

And since then, the company's commercial success internationally has been an outright affront to other smartphone manufacturing companies. Especially as Xiaomi's market share grows year after year, snatching space from Samsung and Apple.

The Xiaomi model

On several occasions, one of Xiaomi's founders (Lei Jun) has stated that the company prices smartphones only slightly above the manufacturing cost price. And it does this without sacrificing the quality of the components, offering a high quality product at low prices compared to other brands.

And this translates into a volumetric sales strategy, i.e., offering quality at a low price to sell more and thus make a good profit. This model, although it may seem simple and trite, has worked so well that its market share is growing by 16% annually. In the European market, this growth has reached more than 50%.

Despite this, and the fact that more than 90% of its revenue comes from the sale of mobile devices, the company continues to categorize itself as a software and internet company. This has generated criticism of Xiaomi from Samsung and Apple for “not generating innovation” in any area.

Depending on who looks at it, the latter may or may not be true. But what is absolutely clear is that Xiaomi offers equipment with the same features of high-end equipment from other brands at a price up to more than 3 times lower, which has guaranteed its commercial success.

Finally, Xiaomi does not use traditional advertising media and focuses on social networks. In addition to building customer loyalty so that they are the spokespersons of the brand. Very similar to what other brands do, isn't it?

The fact is that, regardless of the criticism, Xiaomi is an established company with a business model that has given it such strength that it is practically impossible for Xiaomi to disappear in the future.

What types of financial assets can you trade?

ETFs

What do you know about Exchange-traded funds? They are similar to index funds and are known for combining the advantages of stocks and mutual funds, because they can be exchanged at any moment in the market, but include a much wider diversity of assets and the rates are significantly lower.

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.

You may think differently, but beating the benchmark is far from being a piece of cake and very few fund managers have done it, apart from some famous cases, like Warren Buffett's.

In practice, if a fund manager achieves to beat the benchmark, 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 good thing about index funds is that they solve both issues: their fees are minor and in the long term they almost always beat active managers.

Forex trading

Currency trading or Forex consists, as the name says, in the exchange of currencies. In other words, is the conversion between a pair of currencies, and the aim is, evidently, to obtain a benefit out of this.

If you decide to exchange EUR and USD, you buy euros at their price in dollars, anticipating that after buying the first currency (the euro) it will raise its price compared to the second (the dollar), to make a profit by selling it. Suppose you entered when a euro is worth 1.10 USD and you leave when it reaches 1.15: that difference is yours once you make the operation.

Perhaps you already deducted this, but operating with foreign exchange usually implies a large capital, because prices rarely increase that much, or using a lot of leverage, which you know is a risk. In case you are just starting to trade, it is not a good idea to begin with this market, because it's not the safest alternative.

The most common currency pairs are available on this broker. However, bear in mind that in this market sales are always made through CFDs, which means you will not be the owner of the underlying asset.

About Contracts for Difference

If you have entered this broker before, you must have seen how the acronym CFD appears repeatedly. Before we explain what this is, you should know that CFDs on this broker are only possible when you are short-selling.

FYI, and if you want to try at some point day trading cryptocurrency or other operations, later on you will also find concepts such as leverage and “going short”.

Even if you don't have a positive balance, you can still operate on this broker with CFDs. For example: you have the certitude that the Xiaomi will fall, so probably you consider that it is better to wait until it does and then go in. Nevertheless, if it actually goes down, you can make some profits out of that.

You can do this through what is known known as “going short” which consists in something like this:

  • You ask for a loan of, let's say, 100 units of Xiaomi, which total value at the moment is $ 5,000 (obviously, these figures aren't real)
  • You sell the 100 units and earn $ 5,000
  • The price is reduced, as you calculated, and the unit of Xiaomi goes from $ 50 to $ 30
  • You purchase all 100 units one more time, but at the current price, $ 3,000
  • Then you return the 100 units
  • The rest is yours, so, you will have made $ 2000

It is really simple. Just know that by trading in Xiaomi on this broker, with CFDs you can make a profit if you foretell downs in the price.

Leverage explained

In case you are not familiar with the term “leverage”, we'll describe it briefly: it is the ability to use a higher amount than you actually have. 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 example, you are positive that Xiaomi price is going up, and that you have $ 1,000 for “going long”, you should know that you can increase your investment and make more money.

Possibly, you could ask your bank for a credit, put an asset as collateral, wait for it to be accepted, wait for the money, send the money to your broker, confirm that it arrived, and then obtain Xiaomi… Nevertheless, once you've managed doing all that, probably Xiaomi would be already at a much higher price, and it wouldn't be a good idea to invest.

Thanks to leverage, you can get that amount with two clicks. It's exactly like borrowing money, but much better: from the broker itself. You will be able to operate with much more money than you actually have on the the broker wallet. Before trading, you will find the leverage options as in the image:

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With other assets, you can use more leverage. This is because cryptocurrencies are usually medium-long term investments. However, leverage is used primarily for day trading or short-term operations. Let's talk a bit more about how leverage 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 your broker). 
  • Then, turns out that Xiaomi price does rises, as you assumed, 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 the net profit is $ 400, since the other $1,000 was yours from the beginning.

In conclusion, by investing $ 1000 you can make a profit of 40% (in the case you earn $ 400). That is quite good.

But not everything is wonderful. If everything goes ok and the asset increases, you will make profits. Nevertheless, if the asset decreases, you will also lose more money really fast.

Supposing that the asset didn't increase by 20%, but it decreased also by 20%, you won't lose $ 20 but double, $ 40. That is why the concepts of Take Profit and Stop Loss are so important when trading with leverage.

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 purchased Xiaomi shares at $ 100, you program your broker to close when 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 make you lose it all.

On the other hand, when using leverage you should always use Stop Loss, because a small fall in the price of an asset can have a big impact on your wallet. Consider that the broker will recommend a limit for Stop Loss, but it is better to place it lower than that.