We use cookies to give you the best possible experience on our website. By continuing to browse this site, you give consent for cookies to be used. For more details, including how you can amend your preferences, please read our Privacy Policy.
More Info Accept
81% of retail accounts lose money when trading CFDs with this provider. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. expand_more

Which E-commerce Stocks Should You Buy?

November 20, 2020 12:30 UTC
Reading time: 19 minutes

One of the fastest growing industries in the last two decades has definitely been e-commerce. And 2020 could be a key year for most e-commerce companies, as the Coronavirus pandemic has turned this industry from just a convenience into a necessity. All of this has inevitably strengthened the interest of investors in e-commerce stocks.

If you're one of them, then you're in the right place, because in this article you're going to learn all about:

  • What is e-commerce?
  • Types of e-commerce companies
  • Why invest in e-commerce stocks?
  • Risks when investing in e-commerce stocks
  • How much money should you spend investing in e-commerce stocks?
  • How should you choose the right e-commerce stocks?
  • How can you invest in e-commerce companies?
  • Which e-commerce stocks should you buy for Black Friday and Cyber Monday?
  • How can you start trading e-commerce stocks?

Let's not waste any more time. Let's dive in!

E-commerce Stocks

What is e-commerce?

E-commerce, or online commerce, refers to the purchase and sale of goods and services via the internet, and the transfer of money and data to perform these transactions.

The history of e-commerce begins with the first online sale of its kind:

  • On August 11, 1994, a man sold a Sting CD to a friend through his website NetMarket, an American retail platform. This is the first example of a consumer buying a product from a business through the global network or e-commerce, as we know it today.

Since then, e-commerce has evolved very quickly to facilitate the discovery and purchase of products through online retailers and markets. Individuals, small businesses and large corporations are taking advantage of online commerce opportunities that allow them to sell their goods and services on a scale that would never be possible in traditional commerce.

Global e-commerce retail sales are expected to reach a record $4.13 trillion in 2020, according to statistics website Statista.

Types of e-commerce companies

Although e-commerce may seem like a simple business model, there are actually several different types of e-commerce companies, each with its own characteristics.

Below you can find a classification of business models in this industry:

  • Direct sellers: These companies operate just like physical stores, but operate online. Direct sellers own their inventory and sell goods to customers. An example of such a company is the largest player in this industry - Amazon.
  • Marketplaces: They function as platforms that connect buyers and sellers and earn by taking a commission from sales and providing other services to merchants. Some e-commerce companies operate as both markets and direct sellers. Examples of marketplaces are other major players in this industry such as Ebay and Etsy.
  • Software vendors: These companies provide cloud software that facilitates transactions and other features such as marketing, customer service, and sales management. Shopify is a popular company of this type.
  • Logistics/deliveries: They are responsible for delivering the goods to the customers' homes. UPS and FedEx are major players among these e-commerce companies.

Each investor will make their own choice of which type of e-commerce company to direct their capital. However, in order to diversify the portfolio, it is recommended that all capital earmarked for investment in this industry not be directed to a single company or only one type of these companies.

Why invest in e-commerce stocks?

It is interesting to look back at the growth of online sales and think about the future of this industry. Here are some interesting facts from an emarketer.com report, published by smartinsights.com:

  • The total percentage of retail sales through online trade represented as much as 16% of sales in the United States in the second quarter of 2020
  • In the UK, total online retail sales rose to almost a third of all retail sales
  • China is responsible for 62.6% of all online sales in the world

In the image below you can see the volumes of retail sales through e-commerce around the world:

volumes of retail sales through e-commerce

Source: smartinsights.com

The latest eMarketer forecasts suggest that global e-commerce sales will increase to 16% of all sales in 2020. This constitutes 19% growth. In the next image you can see the forecasts for the development of this industry until 2023.

forecasts for the development of e-commerce until 2023

Source: smartinsights.com

The advantages of e-commerce over traditional commerce seem quite clear:

  1. Shopping from a smartphone
  2. Home delivery
  3. The intervention of new technologies such as artificial intelligence, cloud technologies and autonomous cars will make online commerce even more convenient and deliveries even faster.

The reasons for investing in e-commerce stocks can be many and varied - from maintaining and increasing capital to promoting innovation, but let's formulate the most popular ones. Let's see what you will get by investing in shares of e-commerce companies:

  • Exposure in a fast-growing industry
  • Opportunities for capital gains and achievement of financial goals
  • Opportunities for passive yield in the form of dividends
  • Opportunities for diversification of a portfolio of assets
  • Opportunities to save or retire
  • Protection from inflation
  • High liquidity
  • During weak economic periods, this industry tends to perform more stably

Of course, any investor can find many other reasons to make investments in e-commerce companies. Here, we've just listed some of the most common ones.

Risks when investing in shares of e-commerce companies

Like any investment, holding shares in online trading companies entails its risks. Here we will list some of them:

  • High ratings of most companies in this industry (higher price/profit ratios, etc.)
  • High competition in the sector, which can lead to the rapid decline/disappearance of one company at the expense of another
  • Higher volatility in stock prices compared to most other economic sectors and industries, making them more risky

The risks described above seem entirely reasonable against the background of the rapid growth of the e-commerce industry in the last two decades and the expectation that this will continue in the coming years.

You can test stock trading in e-commerce companies and more than 8,000 financial instruments without risking equity with a demo account from Admiral Markets. Get your demo now by clicking on the banner below:

Trade With A FREE Demo Trading Account

How much money should you spend investing in e-commerce stocks?

You already know what e-commerce is, what types of companies are in this industry and reasons to invest in e-commerce stocks. Now is the time to look at another key issue. How much money to invest in these stocks?

The answer to this question depends mainly on three personal factors:

  1. Personal opportunities
  2. Personal financial goals
  3. Personal tolerance for risk

Personal opportunities can be very individual for different investors and, therefore, it is not possible to determine the exact amount a person should start with.

At the same time, start identifying your financial goals. What will you need in the future? You may want to buy a house or a car, finance your child's education, plan vacations abroad, start or develop a business or a new venture, or just have enough money when you retire.

The answers to these questions will give you an idea of your financial goals.

The next aspect you need to consider is your risk tolerance, or your ability to take risks. It depends on factors such as current income, savings, expenses, financial obligations (such as paying off a mortgage) and adequate financial coverage for life and health. And last but not least, it depends on your own temperament.

You can also look at your investment horizon, or the time for which funds can be set aside without needing them. It will depend on whether you focus on short-term investments or long-term ones. Cumulative investment (a certain amount each month, for example) can make a seemingly small return look solid when it comes to longer periods of time.

Both extended deadlines and higher rates of return could yield similar results. This makes different investments interesting and suitable for different purposes.

How to choose the right e-commerce stocks

The different types of online commerce companies and their rapid development, due to the invasion of new technologies, suggests that you'll need to analyze your chosen e-commerce stocks. However, the goal is to assess which of these companies have advantages over their competitors and to direct your investments to them.

Each investor has their own individual approach when choosing which ecommerce stocks to add to their portfolio. Despite the uniqueness of each investment campaign, there are still some guidelines that can be useful in the selection of shares for online trading.

Below we will mention some of them.

Margin

Operating margin is simply the percentage of sales that an e-commerce company keeps as a profit. The higher it is, the more the company wins, which is positive for its shareholders.

High margins are often a sign of the main strength of a business, which shows that a company has a competitive advantage, such as a well-known brand that gives it price power, allowing it to impose higher prices than competitors. An example of this is Apple and iPhone.

Low margins, especially businesses that have little or no growth, are a sign of weakness, which can result from poor governance, operational problems, or many other challenges.

Margin is one of the most important indicators for e-commerce companies, especially when it comes to direct sellers. For this type of company, the margin is the basis of their profits.

Income

Revenues are income generated by business activities and include discounts and deductions for returned goods. This is the figure of gross income from which expenses are deducted to determine net income. In practice, revenue is money contributed to a company by its business activities.

This indicator is important for e-commerce companies, but its importance is even greater when it comes to marketplaces. They earn mainly from commissions and, therefore, revenues are one of the main indicators of the health of these companies.

Research and development

Members of the e-commerce industry are constantly introducing new products and services. That is why research and development plays a serious role. Accordingly, significant investment in research and development, ranging from 10% -15% of revenue is typical.

If an e-commerce company limits investment in research and development, it will likely lose customers and market share.

If an e-company constantly offers new products and services, it will probably increase the number of its customers.

However, it is important to monitor the company's financial condition to determine if it is using too much debt for these activities. The balance sheet must be carefully considered before investing.

E-commerce stocks for Black Friday and Cyber Monday

The period before and after Thanksgiving in the United States is associated with intense shopping and can be said to mark the beginning of shopping for the Christmas and New Year holidays. These consumer habits have long since spread beyond the United States and have conquered almost the entire world.

This is the reason this period, at the end of November, is of key importance for retail companies, respectively for e-commerce companies. Investors, on the other hand, try to find which of these companies is best positioned to win during this period, in order to buy its shares and try to take advantage of the increased profits.

Black Friday is the name given to the first day after Thanksgiving and is one of the most important events for consumers and retail companies. At the same time, Cyber Monday is the Monday after Thanksgiving weekend, on which consumers return to work and can shop online.

  1. Black Friday is more important for retailers with physical stores
  2. Cyber Monday is more important for e-commerce companies

In 2019, online sales on Black Friday reached $7.4 billion, and those on Cyber Monday exceeded $9 billion. These were record values for both shopping days.

Costs during this period can be used to measure the overall health status of retail sales.

A particularly strong or weak period of shopping from Black Friday to Cyber Monday tends to have a big impact on the shares of retail companies. Let's see which e-commerce stocks could potentially benefit from this important time of year:

Among the e-commerce companies with the biggest earnings in the period around Black Friday and Cyber Monday, may be:

Of course, choosing which e commerce stocks to add to your portfolio before the big shopping event around Black Friday, Cyber Monday and Christmas is a personal decision for each investor.

It should be noted here that Amazon is the largest online trading company in the world and, as of November 9, 2020, Jeff Bezos' company has a market capitalization of $1.66 trillion (November 9, 2020). Below you can also find a chart of Amazon's share price:

AMZN, Weekly chart

Source: Admiral Markets, MetaTrader 5, #AMZN, Weekly chart. Data range from February 3, 2013, to November 6, 2020. Accessed on November 6, 2020, at 5:05 p.m. Please note that past performance does not guarantee future results.

How can you invest in e-commerce stocks?

In fact, investors have several opportunities to gain exposure investing in e commerce stocks, each of which has its advantages and disadvantages.

Each investor must choose the right tools for themself, taking into account their personal capabilities, personal financial goals and risk tolerance.

Here are the main 3 opportunities for investing in e commerce stocks:

Let's give a little more detail about each of them.

CFD of e-commerce stocks

A CFD is a contract for difference, which is concluded between a trader and a broker to exchange the difference in the price of an asset. This contract is active until it is closed by the trader, and payments under it are in cash, instead of the actual delivery of the traded asset.

In practice, Contracts for Difference provide investors with almost all the advantages of real investment in financial instruments, but without actually owning them.

Let's first note the advantages of trading contracts for difference:

  1. Short sales. One of the main advantages of today's CFD trading lies in the possibility of short positions. In this way, you can potentially benefit from both rising and falling markets
  2. Use of leverage. CFDs allow you to manage a larger amount than you have in your trading account. This happens through the use of leverage
  3. Opportunity for transactions within the day. CFDs allow taking advantage of short-term price movements in stock, index or commodity markets
  4. Easy access to global markets. Easy access to many financial instruments, such as stocks, bonds, currencies, commodities, cryptocurrencies, etc. through an intermediary of your choice
  5. In CFD trading with Admiral Markets there are often no fees and commissions for opening and closing positions
  6. There are no restrictions on trading style or investment amount (at least for some brokers, such as Admiral Markets)

Like any investment, a CFD has its drawbacks:

  1. There is no possession of the underlying asset, with which there are no property rights in case of bankruptcy of the company
  2. CFD may be a less regulated product
  3. The leverage effect can be a double-edged sword. This means that in addition to increasing potential profits, the financial lever also increases potential losses
  4. Swap fees to hold the position at night

Trade CFDs on the world's most popular e-commerce stocks now with no commission. Click on the banner below to open an account and get started today!

Trade Forex & CFDs

Real shares of e-commerce companies

Advantages of investments and trading in real shares:

  1. Real possession of the base with all associated property rights
  2. Less risk due to lack of leverage
  3. No swap fees to keep the position open at night
  4. More stable regulation

At the same time, the disadvantages of investment and trading in real shares compared to trading in CFDs of shares are:

  1. Lack of opportunity to open short positions
  2. Lack of opportunity to use leverage
  3. Availability of fees and commissions for purchase and sale
  4. Lack of opportunities to trade in many different markets

Whether you are going to trade in the CFDs of stocks or trade in real stocks you need to go to a regulated broker like Admiral Markets.

ETF investing in e-commerce stocks

ETF means "exchange traded fund". In general, an ETF is a basket of securities that you can buy and sell on the relevant stock exchanges through a financial intermediary (broker).

These funds can invest in many different asset classes, one of which is e commerce stocks.

The benefits of investing in an ETF include:

  • Lower costs because you can buy a basket of shares instead of just one
  • Automatic portfolio diversification
  • Tax efficiency (for example, actively managed mutual funds often buy and sell assets, generating taxable capital gains, which is not the case with ETFs)

Disadvantages include:

  • In some cases, ETFs may have lower liquidity than equities
  • There may be some discrepancies with the underlying asset that follows the fund

Here are some popular ETFs which allow you to get exposure in the e-commerce industry:

  1. Fidelity MSCI Information Technology Index ETF CFD
  2. Vanguard Information Technology ETF CFD
  3. Technology Select Sector SDR Fund ETF CFD

There is no right or wrong tool to start investing in online trading stocks. You just have to choose the most suitable one for your trading and investment style.

Invest in company stocks and e-commerce ETFs with a regulated broker such as Admiral Markets. Get started today by clicking on the banner below:

stocks and etfs with admiral markets

How to start trading e-commerce stocks?

Once you know what e-commerce is, what the different e-commerce companies are, why you should start investing in e commerce stocks, how much money to spend and how to invest in these companies, it's time to move on to the more interesting part. Namely, to make your investment in e-commerce stocks.

You can do this in just three steps:

  1. Open a stock trading account
  2. Download your stock trading platform
  3. Open a New Order window and make your first deal!

For more information on how to open a stock trading account with Admiral Markets, watch the following short video:

Let's give an example of how to buy/sell CFDs on e commerce stocks using Amazon.

How to buy shares

  1. Log in to your account with Admiral Markets (MT4/MT5/WebTrader/Mobile app)
  2. Go to Market Condition
  3. Look for Amazon shares
  4. Right-click on shares and then select "Chart Window"
  5. Once the graphic appears, click on the "New Order" button (in the Toolbar below the menu)
  6. Select the number of lots in the Volume field, as well as stop loss and take profit levels, if you want to place these
  7. Click on the blue "Buy on Market" button

When you buy (a long position) in shares of Amazon, you anticipate that they'll rise in price so that you can make a potential profit from your deal.

How to sell shares

  1. Log in to your account with Admiral Markets (MT4/MT5/WebTrader/Mobile app)
  2. Go to Market Condition
  3. Look for Amazon shares
  4. Right-click on the stock and then select "Chart Window"
  5. Once the graphic appears, click on the "New Order" button (in the Toolbar below the menu)
  6. Select the number of lots in the Volume field, as well as stop loss and take profit levels, if you want to place these
  7. Click on the red "Market Sale" button

When you sell (short position) Amazon shares you anticipate that they'll fall in price so you can make a potential profit from your deal.

About Admiral Markets

We are a broker with a global presence and are authorized and regulated by financial regulators such as the Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySEC) and the Australian Securities and Investments Commission (ASIC). We provide access to over 8,000 financial trading instruments such as Forex & CFDs on stocks, indices, bonds, commodities, ETFs and cryptocurrencies, as well as investment opportunities in real stocks and ETFs.

With Admiral Markets you can use the most innovative trading platforms such as MetaTrader 4 and MetaTrader 5 for free, as well as the exclusive MetaTrader Supreme Edition plug-in.

Start trading in e-commerce stocks with the world's number 1 platform for trading multiple assets - MetaTrader 5, provided by Admiral Markets. Download MetaTrader 5 today, completely free of charge by clicking on the following banner:

Trade With MetaTrader 5


Find more interesting articles:

INFORMATION ON ANALYTICAL MATERIALS:

The data provided provides additional information on all analyzes, estimates, forecasts, forecasts, market reviews, weekly prospects or other similar estimates or information (hereinafter referred to as "Analysis") published on the Admiral Markets website. Before making investment decisions, pay special attention to the following:

  1. This is marketing communication. The content is published for informational purposes only and can in no way be construed as investment advice or recommendation. It is not drafted in accordance with legal requirements designed to promote the independence of investment research and is not subject to a review before the dissemination of investment research.
  2. Any investment decision shall be taken by each client as long as Admiral Markets UK Ltd (Admiral Markets) is not liable for any loss or damage arising from such decision, whether or not it is based on the content.
  3. In order to protect the interests of our clients and the objectivity of the analysis, Admiral Markets has created appropriate internal procedures for the prevention and management of conflicts of interest.
  4. The analysis shall be prepared by an independent analyst Boris Petrov, a financial analyst (hereinafter referred to as the "Author") on the basis of personal assessments.
  5. While all reasonable efforts are made to ensure that all sources of content are reliable and that all information is presented as far as possible in a comprehensible, timely, accurate and complete manner, Admiral Markets does not guarantee the accuracy and completeness of any information contained in the analysis.
  6. Any kind of past or presentation of pricing models of financial instruments listed in the content should not be construed as an explicit or implicit promise, guarantee or interference by Admiral Markets for future results. The value of the financial instrument may increase and decrease at any time, and the preservation of the value of the assets is not guaranteed.
  7. Products sold (including contracts for difference) are speculative in nature and can lead to losses or profits. Before you start trading, please make sure you fully understand the risks involved.