- Want to invest in one of the world’s biggest e-commerce companies?
- Learn how brokers customize their offerings.
- Decide what order type supports your strategy.
Are you thinking about buying Alibaba stock? Trading offers you an excellent way to profit on price action in Alibaba.
If you’re new to trading, this guide gives you everything you need to know about buying stock in Alibaba (NYSE: BABA).
Coming up next
Jack Ma founded Alibaba in April 1999, opening the company’s headquarters in Hangzhou, China. Over the subsequent two decades, Alibaba rose to become one of the largest e-commerce platforms in the world and the preferred e-commerce retailer for the Asian market.
Alibaba's 2014 IPO on the NYSE raised $25 billion for the company, with a $231 billion valuation that made it the biggest IPO ever at the time. The company saw huge revenue increases in 2020, with demand tapering in 2021 after the shares reached an all-time high of $319 in October 2020.
As a foreign company, Alibaba trades as an American depositary receipt (ADR) instead of an ordinary share of common stock. Therefore, investing in Alibaba doesn’t actually involve you buying the stock outright. Chinese trading regulations and laws require you to purchase the company’s ADR listing on NYSE.
When you purchase an ADR, you don’t receive voting rights. However, we doubt that’s a problem for most newbie traders out there.
Where to buy Alibaba stock
Compare online brokers on Finty. Research broker fees, commissions, tradable assets, markets, and commodities, etc.
Step 1: Pick your trading platform
To trade BABA, you’ll need to open an account with a brokerage firm. There are hundreds of brokers out there, and they all promise you the best trading experience. However, there are some significant differences between brokers, and you need to understand what to look for when opening and funding your trading account.
2019 saw the rise of the no-commission broker. The success of the trading app, Robinhood drew many new market participants away from traditional brokers. In an effort to remain competitive, other brokers, including some established, big names like Charles Schwab and TD Ameritrade, started adopting the commission-free trading model. Now, paying no commission on trades is more common than not.
Minimal account fees
Review the terms and conditions of your trading account before signing up or depositing funds. Brokers will charge inactivity fees if you don’t use your account, and some have stipulations on minimum order volumes throughout a calendar month.
Commissions and fees can eat your profits fast. Therefore, it helps to choose a no-commission broker for your account.
Fractional share trading
Alibaba stock trades for hundreds of dollars a share. If you’re starting trading with a $300 minimum account balance, you’ll spend all your funds on a single share, which is a risky strategy. Fortunately, many brokers offer you fractional share trading, meaning you get exposure to price action without the need to purchase a full share.
Real-time data and charts
When you open your trading platform, most brokers provide you with free charts. However, you might notice that your quotes are running around 15 minutes behind the live price. You’ll have to pay the broker a fee or subscribe to an independent charting package, like eSignal, to access real-time market data.
You have the chance to grow your account fast using margin. Margin lets you leverage your position to accommodate more risk in the trade for a better return.
For instance, if you purchase one share at $100, a 3x margin limit allows you to buy $300 worth of the same stock, with only $100 in your account. However, it’s important to note there is added risk in trading on margin, and you could end up losing more than your initial deposit.
Fast deposits and withdrawals
The first time you deposit with your broker, prepare to wait up to 5 days or more to register your account and deposit your funds.
Similarly, you may have to wait up to 5 days or more the first time you withdraw funds from your brokerage account. After the initial deposit and withdrawal, the broker should reduce their funding and withdrawal times to 24 to 72 hours.
Step 2: Fund your trading account
After selecting your broker and finishing the paperwork, it’s time to fund your account. Most brokers will let you fund your account through a wire transfer to the broker.
It may take a few days to complete the transaction, especially if you’re sending money to an offshore broker.
Step 3: Decide how much you want to invest
When funding your account, you’ll need to settle on a balance that makes you comfortable. Typically, traders will only allocate funds to their account that they can afford to lose.
Don't load your life savings or money for day-to-day expenses into your brokerage account. It’s a good idea to start with a minimum amount to test the waters and get a feel for trading. Most offshore brokers will let you trade with account balances as low as $300.
Step 4: Choose between shares of stock or ETF
When you start trading the markets, you have the chance to purchase common shares or exchange-traded funds (ETFs). An ETF is a collection of stocks in an index or a single sector, such as tech or finance. The ETF price rises and falls depending on the performance of the stocks underlying the ETF.
ETFs such as KraneShares CSI China Internet ETF (KWEB), SPDR Portfolio Emerging Markets ETF (SPEM), and SPDR S&P China ETF (GXC) are a good choice for beginners since it spreads the risk across multiple companies. However, you won’t get the massive price movements and volatility that you do with trading stocks. Choose the strategy that fits your risk tolerance.
Step 5: Set up your order
After setting up and funding your account with your preferred broker, it’s time to start trading. When you open your trading platform, you’ll find that you have a chart of the stock or ETF, as well as a market order window and market depth and volume information.
When you place a trade, you’ll want to select one of the following order types.
This order gets you into the market at any price. For instance, you could want to purchase a share of BABA at $220, but in a market order the broker will fill you at the closest available price. Therefore, the trade could end up executing at $225, with the $5 difference being what is called “slippage.”
This order gets you into the trade at a set price. For example, you set the trade to enter BABA at $220. If the stock never reaches this price, or there’s a sudden surge in price action, the order won’t fill. Professional day traders use limit orders to mitigate slippage and risk.
This order stops you out of the trade if the price action falls below a predetermined level of risk. For instance, you set the order to sell at your BABA stock automatically if the price drops to $200, limiting your downside.
This order lets you sell when the price hits a specific target. For instance, you set up the order to sell BABA at $225, netting you a $5 profit on each share.
Step 6: Place the order
After selecting your order type, it’s time to click the buy button and get into your first BABA trade! You’ll see your trading platform has fields where you can enter the ticker, number of shares, and order price.
When you’re ready to catch the next breakout, click the buy button, and you own the stock! When you’re ready to sell, click the sell button on your platform, and it closes the trade.
Step 7: Track BABA's performance
After getting into your trade with BABA, you’ll need to keep an eye on it to ensure the price action is going along with your strategy. Several market factors can influence the price of BABA stock, including events in Asia and the US - China trading relationship. Companies like Alibaba include Amazon (NASDAQ:AMZN), Coupang (NYSE: CPNG), eBay (NASDAQ: EBAY), Shopify (NASDAQ: SHOP), Mercado Libre (NASDAQ: MELI), and Ozon (NASDAQ: OZON) are also worth tracking alongside Alibaba.
Press releases, newsletters, and announcements provide you with market “catalysts” that change the price action of BABA stock, establishing trends. Make sure you have a trading strategy and you understand where to exit your trade.