- Ready to leap into the fintech market?
- Learn how online broker offerings may differ.
- Consider what different trade types support your trading strategy.
PayPal (NASDAQ: PYPL) is a leading fintech firm specializing in the transfer of money between private persons and companies. PayPal revolutionized online payments, making it easy to send and receive money digitally from anywhere in the world, without the need to use a bank.
The company's success led to the development and launch of many other "e-wallet" services, such as Stripe and Venmo. This guide gives you everything you need to know about trading PYPL stock.
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Co-founded in 1998 by legendary investor Peter Thiel and a group of others known as the "PayPal Mafia". PayPal has headquarters in Palo Alto, CA.
Many people mistakenly think that Elon Musk founded PayPal. Although Musk served briefly as the company’s CEO, the board fired him over a server debacle. Several members of the PayPal Mafia went on to found new companies — Max Levchin who founded Affirm, Reid Hoffman who founded LinkedIn, Chad Hurley who co-founded YouTube, etc. — while others became investors.
PYPL launched its IPO on the NASDAQ exchange back in 2002 at $13 per share.
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Step 1: Selecting a broker
Before you trade PYPL stock, you'll need to open an account with a brokerage. Look for these features to choose the best broker for your needs.
With so many firms offering commission-free trades, you can grow a small account fast. Low or no commissions are especially important for day traders, who may be trading frequently on small price movements, as every cent of commission reduces your profit.
Fractional share trading
If you can't afford a whole share, fractional shares can give you exposure to price action on PYPL stock so you can build your position with smaller incremental investments over time.
Intuitive trading platform
Your broker issues you with a basic trading platform for managing your trades. If you want more detailed information, look for brokers that allow you to plug in aftermarket platforms like DAS Trader.
Low account fees
Brokers compete with each other for your business by offering different fee schedules. Shop around for the best deal before opening your account.
Your broker offers cash and margin accounts for trading. With a cash account, you may only trade the balance in your account.
You'll also have to wait for the broker's clearinghouse to settle your trades, and this may take 48 hours. During that time, you can't place any other trades. Margin accounts let you “borrow” money from the broker to fund your trading while previous trades clear.
Real-time data and charts
Your charts included with your trading platform don't display live market data. You'll need to pay extra for this service, or your quotes may lag by up to 15 minutes.
Looking for a stock broker to buy PayPal shares? Use our online stock broker comparison to compare brokerage fees and much more.
Step 2: Fund your account
To fund your trading account, you'll need to send your broker a bank wire transfer or make a deposit with your debit card. Brokers won't accept credit cards for deposits.
It might take the broker up to two weeks to enable your account, check your identity, and verify your deposit. Prepare to wait and don't let it frustrate you. You may also experience a delay in your first withdrawal as the broker sets up the withdrawal process with your bank.
Step 3: Decide an appropriate investment amount
After funding your account, you're ready to place your first trade. To start, you're going to need to decide on the right risk exposure for your trade. Professional traders diversify their risk and rarely invest more than 5% on a single company. As a result, they protect their account from blowing up if that investment turns against them.
We recommend you only fund your trading account with money that you can afford to lose. If your life savings or your kid's college fund get caught on the wrong side of a trade, it could be financially disastrous.
Step 4: Choose between a share of stock or ETFs
You have the option to buy whole shares or fractional shares in PYPL. However, you can also purchase an exchange-traded fund (ETF). ETFs like the SPDR S&P 500 ETF Trust and Vanguard S&P 500 ETF contain PYPL stock, along with stock from other firms in a "weighted basket."
As a result, you reduce your risk exposure to PYPL, preventing wild swings in price action that could blow up your small trading account.
Step 5: Set up your order
After choosing between PYPL stock or an ETF, it's time to place your first order. Here are four useful order types.
The market order allows you to purchase PYPL stock at the next available quote. However, it's not the ideal order type, as the broker may fill you above the expected entry price. You might place your order to buy PYPL at $250. However, when you click the buy button, the broker fills you at $255 (known as "slippage"), disrupting your trading plan.
A limit order prevents slippage on your trade. You enter the price you want to pay, and the broker will only fill you at this price. However, if the market surges, the broker might not have the opportunity to fill your order, or you might end up with a partial fill.
The stop-limit order lets you sell your shares when you reach your target. For instance, you enter at $250, placing a stop limit to sell at $260. When the price reaches this level, your order executes and gets you out of the trade, locking in a profit.
The stop loss helps you manage risk in your trade. If you enter PYPL at $250, you don't want to risk more than 5% of your trading account balance. Set your stop loss at $237.50, and if the price drops to that level, the broker will sell your stock as long as the order is in place, protecting you from further downside.
Step 6: Place the order
After choosing your preferred order type, it's time to place your order! Your trading platform has fields you must populate in order to place your trade. Enter the PYPL ticker and complete the fields for number of shares, order type, and price.
Clicking the buy button gets you into PYPL stock. When you reach your price target for the trade, click the sell button to instruct your broker to exit the position (assuming you haven't set up a stop limit).
Step 7: Monitoring performance
As a leading fintech firm, PYPL stock is subject to swings in price action during changes to financial regulations or company announcements. For example, on Oct 21, 2020, the company announced it would permit buyers to use cryptocurrencies to make payments to merchants, resulting in a 5.5% bump in the share price that day.
Watch out for PYPL-specific news as well as events affecting the broader fintech market and changes to financial regulations that could cause volatile price action in PYPL stock. Competitors include Square and Stripe, while Apple and Google are also heavily invested in their own e-wallets. And with the rising popularity of installment plans as an alternative form of payment, it is feasible that Afterpay, Sezzle, PayPal, etc. could develop an e-commerce platform like Shopify to complement their payments business.