Social media giant, Facebook, has secretly been working on an initiative code-named Project Libra to build a cryptocurrency-based payment system for its users. According to some analysts, it could create a multi-billion dollar revenue opportunity for the company and that has investors extremely excited.
In this article, we explain what we know so far about Project Libra, how Facebook plans to use it, what it means for their stock price and how to trade it. Let's begin!
What is Facebook's Project Libra?
Project Libra is the code name for a secret initiative Facebook started more than a year ago. The company is planning to build a cryptocurrency-based payments system for its more than 1.5 billion users. The social network has already approached major Wall Street banks to raise around $1 billion in investment as well as enlist partners such as Visa, Mastercard and other e-commerce companies and app developers.
Facebook's digital currency would allow users of the WhatsApp messaging service to send money to one another with ease through their underlying blockchain technology - a technology that is key to cryptocurrencies and one that has historically kept cryptocurrency investors notoriously bullish.
At Facebook's recent F8 annual software conference, Mark Zuckerberg, Facebook's founder, explained just how important payments and private commerce will be to the company in the future stating that "payments is one of the areas where we have an opportunity to make it a lot easier". Breaking ground in this field also opens up the possibility of multiple billion dollar revenue streams.
Why are Investors excited about Project Libra?
If Facebook's foray into creating their own digital currency and integrating it with e-commerce platforms is successful, it opens up the doorway for brands to spend more on advertising, which is where most of the company's revenue comes from. However, as users become more comfortable with new payment features it also opens up the doorway for Facebook to expand into financial services - another multi-billion industry and a diversification away from just advertising revenue.
Some analysts have already jumped on the bandwagon, 'selling' the idea to their clients. For example, Barclays internet analyst Ross Sandler said in a note to clients that as much as $19 billion in additional revenue could be created by 2021 from 'Facebook Coin'. This, according to Sandler, is a game-changer in the story of Facebook.
So what is Facebook's stock price telling us and what are the possible trading opportunities? Let's take a look.
How to Trade Facebook Stock
Facebook's share price performed extremely well between 2012 and 2018 before the company became embroiled in data privacy issues and the late-2018 stock market crash. However, after its share price dropped more than 40% last year, it has since rallied 60% higher from its 2018 lows as the chart below shows:
Source: Admiral Markets MT5 Supreme Edition, FB, Weekly - Data range: from May 13, 2012, to May 23, 2019, accessed on May 23, 2019, at 7:57 am BST. - Please note: Past performance is not a reliable indicator of future results.
What some traders and investors may find interesting is the fact Facebook is still trading below its all-time high price of around $218 made on July 25, 2018. Traders will be watching this level very closely, as it represents a 20% rise in the stock price from its most recent bounce of the 50 period moving average as denoted by the red wavy line in the daily chart below:
Source: Admiral Markets MT5 Supreme Edition, FB, Daily - Data range: from January 3, 2018, to May 23, 2019, accessed on May 23, 2019, at 8:08 am BST. - Please note: Past performance is not a reliable indicator of future results.
Moving averages are often used to aid in identifying the direction of the overall trend. However, they are also useful in identifying turning points in the market as price action can often bounce from moving averages in strong trending markets.
Traders may also consider using simple price action based strategies for possible entry, stop loss, and target levels. For example, a popular price action pattern is a bullish pin bar reversal. This is when a bar makes a new daily low, but then trades all the way back up and closes the day in the upper half of the bar.
On May 14, Facebook's stock price formed a bullish pin bar reversal as the daily chart below shows:
Source: Admiral Markets MT5 Supreme Edition, FB, Daily - Data range: from December 13, 2018, to May 23, 2019, accessed on May 23, 2019, at 8:16 am BST. - Please note: Past performance is not a reliable indicator of future results.
Traders could have entered a buy order on the high of this bullish pin bar reversal at $182.42. A stop loss could have been placed on the low of the bar at $178.13.
With a 10 lot, or 10 share, position size, this would result in a possible $42.90 loss if the entry and then stop loss was triggered. However, in this instance, the share price has continued to move higher. Targeting the next daily swing high at $197 would result in a potential profit of $145.80 which, as of May 23, has not yet been reached.
If Facebook's new cryptocurrency venture is successful, its share price could be trading beyond its previous all-time high price in the future. How will you be trading it?
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