The world has changed a lot in the past few weeks, and the need for video technology like Zoom has never been more prevalent. Anyone who is now working from home or has children at school will no doubt have downloaded and signed up for a video conferencing app like Houseparty or used video conferencing services offered by existing apps like Whatsapp or Houseparty.
One service in particular though seems to have been lucky enough to get some high-level endorsements is Zoom. After all, in all crises, there will be victims, survivers and thrivers. If you think Zoom is going to be a thriver, here’s a quick guide to buying shares in Zoom.
UK investors can buy ZOOM stock through one of these three ways:
- Buy ZOOM shares through a stockbroker
- Speculate on ZM CFDs through a CFD broker
- Place a spread bet on Zoom Video Communications, Inc. through a spread betting broker
I’ll quickly run through the benefits of each as well as the risks associated with them.
First, a bit of history about Zoom Video Communications, Inc. shares so you can buy the right Zoom stock. Zoom was founded in 2011 by Eric Yuan, who previously worked for WebEx, which was acquired by Cisco. Zoom shares are traded on the NASDAQ exchange in the US under the ticker ZM. The NASDAQ predominantly lists technology stocks like Facebook, Apple, and Google. There are a lot of high growth early-stage companies, but also lots of well-established technology brands.
Zoom shares were first listed in April 2019 at a price of $36. As you can see from the below graph ZM shares did well initially significantly outperforming the NASDAQ. Towards the end of the year, the stock faltered a little, coming back in line with the NASDAQ index. However, since the beginning of 2020, the shares have considerably outperformed the NASDAQ.
Zoom makes money using a freemium model. i.e. it is free to sign up and use generally for personal use, but for longer and larger meetings you need to pay to use it.
Firstly the risks – as with all international investing and trading you have to be mindful of currency exposure. When you buy USD shares you are essentially buying USD. So if the USD weakens against the GBP by 10% and the shares only go up by 5% you will have lost 5% rather than gained 5%.
Be mindful of the exchange rate your broker gives you when buying USD stock. If you are converting a large amount of GBP into USD, it may be worth using a currency broker for the transaction to get a better exchange rate.
Although this may be beneficial in this case. After the USD is perceived as the strongest currency in times of crisis. That’s one of the reasons that global investment funds have performed so well over the last few years. UK investors have benefitted from a strong USD and also solid growth from the top US tech firms that these funds usually own.
This risk applies to buying Zoom stock through a stockbroker or CFD broker. But with financial spread betting, you are able to place your bet in GBP. So you avoid the currency exposure. Also with spread betting profits are currently free of capital gains tax. Some CFD brokers may enable you do change the base currency of your trades to GBP, but most settle in the underlying currency. CFDs can also offer DMA, for larger traders. Enabling you to place your orders directly on the exchange, whereas with spread betting you have to deal at your broker’s quote.
Spreadbetting and CFDs on ZOOM are leveraged trades and highly risky.
Technology stocks are very volatile even in normal market conditions so make sure you fully understand the risks involved before trading. Depending on what margin the broker is offering, you can, for example, buy $1,000 of Zoom stock with $100 on the account. But, this is a big risk. If the Zoom share price halves, which it could do if for example, it’s critical systems and infrastructure were to fail, you would lose $500 with only $100 on account. In theory though if you are classified as a retail client rather than a professional trader you would be stopped out when your account balance reached $100. But, you can still lose your money very quickly day trading. It’s a classic case of return versus risk.
If you are investing in the long term, buying Zoom shares through a stockbroker may be a better option. The costs are lower as you won’t have to pay the financing costs or running a leveraged position, just commission one the trade and selling costs.
With a stockbroker you don’t trade on leverage, you buy the stock outright, so if you buy $1,000 of Zoom shares, you need to have $1,000 (plus commission costs) on account.
Many stockbrokers have reduced their commission rates on US stocks, as there has been a raft of new digital brokers setting up and offering US stocks for free. Although free stockbroker is more of a marketing ploy than anything else, free stockbrokers generally make their money on the GBPUSD conversion rate and by selling orders to market makers in the US.
However, in these uncertain times, it may be sensible to go with an established broker. Most of the new brokers that offer free stock broking services are on a massive grab for new clients with a view to making money in the future. Established brokers like the stockbrokers we feature in our comparison tables offer some very competitive commission rates on US stocks. For example, IG Group is now offering commission-free dealing on US stocks. If you want to take advantage of tax-free investment accounts you can open an investment ISA account with most stockbrokers, rather than a general investment account.
The answer here is nobody knows, it depends on if there are more buyers than sellers, and how the overall economy does coming out of the Coronavis pandemic. We took a look at the Coronavirus pandemic in context to other market crashes and how long they took to recover before.
If you are looking for opportunities to make money in a crisis they come with great risk. So you need to ask yourself, do you need more money more than you need the money you have. If you think you are going to need the money you have, then consider how you would be financial if you lost the money you used to buy Zoom shares.
You can see Zoom’s current share price information in the image from Yahoo Finance below.
As with all investing and trading always seek independent financial advice and make sure you fully understand the risks involved.
Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.