- Learn how to invest in Amazon.
- Evaluate which online broker is right for you.
- Find out about different order types and trading strategies.
From humble beginnings in a small Washington apartment, Jeff Bezos launched Amazon (NASDAQ: AMZN) in 1995 as a second-hand book dealer. Since then, Amazon has grown into the world’s largest retailer, making Bezos one of the richest in the world.
Trading Amazon stock offers you the opportunity to benefit from the growth and performance of the world’s largest e-commerce player. If you've decided that now is the time to buy Amazon stock, this guide will take you through the process one step at a time.
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Amazon launched its IPO in 1996 and began international expansion in 1998. Amazon smashed through $10 billion in revenues in 2006 and is currently one of the biggest tech names in the market, stealing a march on competitors such as eBay (NASDAQ: EBAY)and more recently Etsy (NASDAQ: ETSY) and Shopify (NASDAQ: SHOP). Amazon is more than just an e-tailer. The company also operates AWS (Amazon Web Services) which offers cloud computing services, and it has vested interests in several other companies and projects.
Where to buy Amazon stock
Still not sure about which stock broker to use? Check out our stock broker comparison to compare fees, tradable assets, and more.
Step 1: Choose a broker
To start trading AMZN stock, you’ll need to pick a broker. Discount brokers form a bridge between you and the market, letting you access assets to trade in several markets, including the NYSE and NASDAQ.
When selecting your broker, you’ll need to compare the offerings from each firm. Each broker has a slightly different offering designed to appeal to different types of investors.
Fractional share trading
AMZN trades at over $3,000 a share. While there’s talk of another stock split in the future, we expect the price will not drop to a level affordable for new traders.
As a result, the only option you have to invest in AMZN is through fractional share trading or ETFs. With fractional shares, you can buy a percentage of one share of common stock.
As a result, you get exposure to the price action in Amazon without committing an outsized amount of your portfolio to just one company.
The Robinhood trading app officially brought commission-free trades into the spotlight. After seeing their business shrink, firms like Charles Schwab and TD Ameritrade also started offering commission-free trading.
Commissions account for a large percentage of your trading profits. If you can minimize this cost, it helps you make more money on smaller market moves while reducing your risk.
Intuitive trading platforms
Your broker will provide access to its custom trading platform when you sign up for an account. The platform gives you everything you need to place a trade.
Some brokers also have paid options for plugging in other specialists’ aftermarket trading platforms, such as Sterling Pro or DAS Trader.
Compare the costs of doing business with your broker to other firms. All brokers offer different fee schedules for transaction fees, inactivity fees, and monthly account fees. Look for a broker offering you a good balance between commission-free trading and low costs.
Real-time market data
Your trading platform comes with charts to help you track price movements on your stock and conduct technical analysis. However, most have delayed quotes which means the quote you are seeing in the platform is a few to even 15 minutes old and is not the currently active trading price. If you want real-time market data for your charts, you’ll likely have to pay an additional fee.
Margin and cash accounts
When you start trading, you have the option of using a cash or margin account. With a cash account, you can only trade in an amount equivalent to the balance of your account. You’ll also have to wait three days for your trades to settle before you can access your buying power again.
With a margin account, the broker lends you money to spend on trades. This process, also known as trading “on margin” or in a “margin account,” lets you access three to six times the value of your account balance for a trade. This means if you have $100 in your account, the broker may let you purchase up to $600 of AMZN stock using a 6:1 margin ratio.
Buying on margin can boost your returns but it also has a downside. If the price of AMZN falls, then you may have to add funds to the account to cover some of the decline in market value. If you don’t have the additional funds and are unable to meet these payment requirements, called maintenance margin, in a timely manner, the brokerage has the right to sell your shares at the prevailing price, meaning you may end up locking in a loss.
Step 2: Fund your account
After deciding on your broker and account type, it’s time to fund it and start trading. To fund your account, you have the option of sending in a wire transfer or using a debit card.
Step 3: Decide how much you want to invest
A good rule for newcomers to the market is to fund your account with an amount you can afford to lose. If you’re relying on stocks to cover a financial shortfall, it’s a risky move. Stocks are inherently volatile assets and prices can move significantly up or down even within a single day.
Step 4: Choose between a share of stock or ETF
After funding your account, it’s time to decide if you want to invest in fractional AMZN shares or an ETF. An ETF is a vehicle with exposure to several different stocks.
ETFs that give you significant AMZN exposure include SPDR S&P 500 ETF Trust (SPY), SoFi Gig Economy ETF (GIGE), and the ARK Innovation ETF (ARKK), founded by Cathie Wood. ETFs are an excellent way to diversify, or spread, your investment risk across several companies to avoid your portfolio being overweight in any one company.
Step 5: Set up your order
After settling on your asset, it’s time to place your first trade. You’ll use one of the following four order types to execute the trade:
This order gets you into AMZN stock or ETFs at the best available price in the market at that time, typically the price near the last posted price. However, if the price changes between order submission and execution, the order might execute at a higher price, causing “slippage.” For instance, you could set a market order to purchase shares when the stock last traded at $100. However, the market could quickly move up and your order could fill at $107, giving you $7 of “slippage.”
This order type is the choice of professional day traders. You set the entry price, and the market fills you at this price and not a penny more. As a result, you don’t have any slippage on your order but you may not have your trades executed if the shares do not hit that price.
This order type lets you sell when the price action reaches a specific price. For instance, you could set up your order to sell at $110, and it executes automatically when the market achieves this price. However, if the shares are rallying even higher, you may end up missing the chance to make even more profits.
This order type is for managing your risk. If you get into a trade at $100, you’ll set your stop loss at $95. If the market dips to that price, the platform automatically executes your sell order, preventing you from taking further losses.
Step 6: Place your order
After figuring out your order types and the specifics of your trading platform, it’s time to place your first trade.
You’ll see that your trading platform has fields for entering your limit order price and the number of shares you want to buy. Click the buy button, and once you receive confirmation the trade is executed, you will own AMZN stock!
When you are ready to sell, click the sell button, enter your order type and price and once you get confirmation the trade is completed, you will have sold out of your position, hopefully for a profit.
Step 7: Monitor how it performs
AMZN stock performance relies heavily on its earnings announcements and industry newsletters. When AMZN is getting ready to release earnings, it can cause massive volatility in the price. As every trader knows, volatility equals opportunity.
But there are times when the price moves down along with the broader market. In September 2018, the price of Amazon shares passed $2,000, giving it a $1 trillion market capitalization. By the end of 2018, though, Amazon had lost almost a quarter of its value. This was due to a mix of company-specific concerns about weaker than expected 4th quarter earnings as well as macroeconomic concerns which hit all tech stocks, including rising interest rates, a slowdown in global growth and ongoing political instability.