Coinbase (NASDAQ: COIN) is the largest regulated American cryptocurrency exchange and the first to go public in the sector.
If you want to ride the wave of the crypto craze, this guide unpacks everything you need to know about buying shares in the company from the UK.
About the company
With cryptocurrency returns setting records, more people are getting into crypto every day. Coinbase was the hottest IPO of 2021 and yet the biggest disappointment. The company failed to hold its reference price of $35 at launch.
However, with a massive valuation and a growing cryptocurrency market, COIN offers you the chance to invest in America's largest cryptocurrency exchange and get exposure to crypto without actually holding any specific coin.
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Step 1: Pick a stock broker
To trade Coinbase shares, you need an account with a brokerage firm. Here's what to look for when assessing prospective brokers.
If you have a small account, commissions can make it hard to grow your balance. With brokers offering zero commissions on trades, you can trade more frequently while saving more of your profits.
Fractional share trading
If you have a small account with a $300 balance, you could afford one share of COIN at most, and it would use a considerable amount of your account's balance to buy the shares. Risking your account on one company is dangerous; what if the trade goes the wrong way? Fractional shares give you exposure to COIN price action at a risk level you can manage while also giving you the capacity to invest in multiple companies.
Low account fees
Brokers want your business, and they compete with each other for it by offering different fee schedules. Before signing up with a broker, shop around for the best prices on fees.
When you open your trading account, you have the option of selecting a cash or margin account with the broker. A cash account lets you trade the cash balance of your account. If you use all your buying power in a single day, you'll have to wait a day for the clearinghouse to process your trades.
To get around this issue, your broker offers you a margin account. With margin, the broker is supporting your trading by “lending” you funds. The broker also gives you the chance to use "leverage" on your account balance so you can buy shares worth 3x or even 6x your balance. If a margin trade goes against you, be prepared to deposit more money to cover any maintenance margin required by the broker.
Real-time data and charts
Your broker issues your charts with your trading platform. Beginner traders will find the charts user-friendly, making for a pleasant trading experience. However, they lack real-time data, and your quotes come delayed by up to 15 minutes. You'll need to purchase real-time market data separately if you want live prices.
Step 2: Transfer funds to your account
Brokers accept debit cards and wire transfers for trading account deposits. Depending on who you go with, it might take several days to set up and fund your account, as the broker needs to verify your identity to meet financial regulations.
Step 3: Decide how much to invest
When funding your account, it's a good idea to use funds you can afford to lose. Depositing your kid's college fund into your trading account in the hope of tripling it overnight is a bad move.
For instance, when Coinbase IPOed in April, it experienced a huge sell-off to the US$250 reference price in less than a month. If you had your life savings in that trade in the hope of it "mooning," you would have ended up taking a big loss.
Remember this – the market can remain irrational longer than you can stay solvent.
Step 4: Choose between shares of stock or ETFs
After deciding on your risk tolerance, you have the option of buying shares in COIN outright, or you can use an exchange-traded fund (ETF). ETFs are financial vehicles containing the shares of several companies that participate in the same sector of the economy.
Cathie Wood's ARK Innovation ETF (ARKK) is an example of a vehicle giving you exposure to COIN price action. ETFs are typically less volatile and the better choice for swing trading.
Step 5: Set up your order type
Traders use the following order types to manage their trades.
This order lets you get into Coinbase share at the next available price. However, you might not get the price you were expecting. You might want to enter COIN at US$100, but the market order might fill at US$105 or US$110 if the price action moves fast. This excess US$5 or US$10 that you paid over the price you expected is known as slippage.
This order eliminates slippage. It only fills at a specified price. However, if the price action moves quickly, your order might not fill, or the broker might give you a partial fill.
With this order, you can sell your share automatically when it reaches your price target. For example, you buy COIN at US$100 with a price target of US$120. When the price meets your target, the broker sells your shares, returning your realized profit to your trading account.
This order acts as a risk management tool for new traders. Most traders should risk more than 5% to 10% of their account on any trade. Before you enter your trade, you'll identify your entry.
You set the stop loss at 5% to 10% below your entry price, depending on your risk tolerance. If the price falls to that level, the brokers liquidate your position, limiting your total downside in the trade.
Step 6: Submit the order
After selecting the right order type to match your trading strategy, you're ready to buy Coinbase shares. Load your trading platform and enter the COIN ticker. Populate the other fields with your order type, limit price, and the number of shares or fractional shares you want to buy.
Click the buy button to get into Coinbase share, and click the sell button when you want to exit your position, hopefully with a profit.
As the first crypto exchange to IPO, Coinbase is heavily subject to news in the crypto-sphere. Any change in crypto regulations can cause the price to move. Moves in cryptocurrencies like Bitcoin and Ethereum can also play a role in dictating price action. Therefore, expect price volatility. Shares like Coinbase, which you can track for comparison, include Riot Blockchain (NASDAQ: RIOT), NVIDIA (NASDAQ: NVDA), and PayPal (NASDAQ: PYPL).
Pay attention to press releases and newsletters in the crypto market. A good example would be the European Investment Bank issuing US$100 million in bonds using the smart contract, ETH, or Chinese regulators cracking down on crypto trading or mining.
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