Nikola Trading Guide: How to Trade the NKLA Stock?

Trading Nikola stock (NKLA) presents an opportunity to engage with a company that’s part of the evolving transportation sector, known for its focus on zero-emission commercial trucks.

This guide will walk you through the essential aspects of trading NKLA, offering insights into various approaches and risk management tools to help you make informed decisions. We'll also explain key factors that can influence Nikola's stock price and examine different trading methods.

Whether you're looking to understand the history of Nikola stock or seeking practical trading strategies, this guide has you covered.

Why Trade Nikola Stock

Nikola Corporation, a pioneer in zero-emission commercial trucks, may present a unique opportunity for traders who are particularly interested in the clean energy and transportation sectors.

Although Nikola stock’s past performance has been marked by volatility in a rapidly evolving industry, its endeavours in developing both battery electric vehicles (BEVs) and hydrogen fuel cell electric vehicles (FCEVs) make it a stock that traders may want to consider.

Moreover, the company’s efforts to build out hydrogen fuel infrastructure could be pivotal for its future growth. If hydrogen infrastructure develops, Nikola could be well positioned with a first-mover advantage.

However, Nikola’s journey has encountered significant challenges, including missing production targets and facing legal issues. These hurdles, along with the company’s financial performance and the volatility of the market, may continue to affect its stock price in the future. Traders should be aware of these factors when considering Nikola stock.

Nikola Stock History

Nikola Corporation, founded in 2015 and headquartered in Phoenix, Arizona, began trading on the NASDAQ under the ticker symbol NKLA on June 4, 2020. Nonetheless, it’s notable that Nikola did not have a traditional initial public offering (IPO). Instead, it became a publicly traded company through a merger with VectoIQ, a special purpose acquisition company (SPAC).

The price per share at the time of NKLA’s first trade was US$37.55. Just days later, on June 9, 2020, Nikola’s stock hit an all-time high of $79.73. Since then, the stock has experienced significant fluctuations, with the price dropping to a low of $0.49 on June 11, 2024.

Despite these challenges, Nikola has made strides in its mission to transform the transportation sector. For instance, on May 21, 2024, the company announced a sizable order for 100 hydrogen fuel cell electric trucks, signalling progress in its commercialisation efforts.

While Nikola’s market capitalisation, which was approximately $690 million as of June 14, 2024, is much smaller than that of tech giants like Apple (AAPL), it’s higher than that of some competitors in the electric vehicle (EV) sector, such as Lightning eMotors and Phoenix Motor Inc.

What Drives the Price of NKLA

A number of factors can influence the Nikola stock price, creating a multifaceted web of influence that traders must navigate. Among the factors that drive the price of NKLA are:

• Supply and Demand: The law of supply and demand is a key driver of stock prices. If demand for Nikola’s shares outpaces supply, the stock price may rise, and vice versa. For instance, on February 22, 2024, despite lower-than-expected guidance for 400-450 truck deliveries versus the estimated 575, early signs of strong demand positively influenced the price of NKLA.
• Partnership Collaborations: Partnerships may significantly impact NKLA’s price by potentially enhancing the company’s credibility and expanding its market reach. For example, on September 8, 2020, Nikola’s stock got a large boost after announcing a partnership with General Motors (GM).
• Clean Energy Developments: Advances in clean energy technology can also influence Nikola’s stock price, especially given the company’s focus on zero-emission vehicles. On October 31, 2022, Nikola’s stock increased after announcing a partnership with KeyState Natural Gas Synthesis to create Pennsylvania’s first low-carbon hydrogen production value chain.
• Environmental policies: Changes in environmental regulations may impact Nikola’s stock price, as these potentially affect the company’s operational costs and market opportunities. For example, on August 2, 2023, Nikola attributed California’s Hybrid and Zero-Emission Truck and Bus Voucher Incentive program (HVIP) to accelerating most of their sales, boosting trader confidence in zero-emission trucks and positively impacting NKLA's stock price.
• Market Sentiment: Consumers’ and traders’ overall mood or attitude, influenced by factors such as company news, industry trends, and economic indicators, can also drive fluctuations in the price of NKLA. As an example, a 2023 selloff in the broader EV sector, including companies like Tesla (TSLA) and Nio (NIO), led to a drop in Nikola’s stock. This drop was attributed to negative market sentiment towards the EV industry at that time.

To effectively trade Nikola stock, traders must have a comprehensive understanding of the many factors that can potentially drive NKLA’s price up or down.

Ways to Trade Nikola Stock

Traders can choose from several methods to trade NKLA stock, each presenting potential advantages, drawbacks, and considerations based on each trader’s financial goals and risk tolerance.

Nikola Shares

One method of trading NKLA is buying shares, also referred to as stocks or equity. These shares represent ownership in Nikola Corporation and are listed on exchanges such as Nasdaq, allowing traders to participate directly in the company's financial outcomes. By purchasing shares, traders gain direct exposure to Nikola's market performance.

Nikola ETFs

Another method for trading Nikola stock is through exchange-traded funds (ETFs), which combine NKLA with other stocks to follow specific market indices or sectors. For example, the iShares Russell 2000 (IWM) ETF includes significant holdings in Nikola, providing exposure to a range of sectors, including technology and financials, with a single transaction.

ETFs can be traded throughout the day like individual stocks, although traders should be aware of transaction fees and expense ratios that might impact overall returns.

Nikola Share CFDs

Contracts for difference (CFDs) offer another way to speculate on NKLA’s price movements without having to own the shares directly. Trading Nikola stock CFDs allows for leveraged positions, meaning you can control a large position with a smaller initial capital outlay, potentially increasing gains but also amplifying the risk of losses.

Unlike traditional stock trading, CFDs provide the flexibility to speculate on rising and falling markets, adding more versatility but also more risk of potential losses.

Nikola Options

Nikola stock options can offer traders a way of speculating on future price movements without owning the actual shares. Plus500 offers two types of options CFDs on Nikola: call options and put options. These allow traders to speculate on whether the stock price will rise or fall by a certain date.

However, it’s important to note that options trading carries significant risks, including the potential for substantial losses if market predictions are incorrect.

How to Trade NKLA CFDs

Trading NKLA CFDs allows traders to speculate on Nikola stock's price movements without owning the actual shares. The key principle behind CFDs is that they can potentially generate gains or losses from the difference in price between the opening and closing of the contract.

When engaging in NKLA CFD trading, traders can monitor stock prices and use charts to analyse trends before placing Buy or Sell orders. For instance, if you expect NKLA’s stock price to rise, you can 'go long' by purchasing a CFD. Conversely, if you anticipate a price decline, you can 'go short' by selling a CFD.

The flexibility to take long or short positions in CFD trading allows you to gain exposure to both upward and downward market movements, which is particularly useful during periods of market volatility. Nonetheless, this same volatility can also increase trading risks and may not be suitable for all.

Another notable feature of NKLA CFD trading is the ability to open positions with a margin deposit, enabling you to leverage your trades. Although leverage can amplify potential gains, it also raises the potential of losses, making risk management crucial.

When closing a CFD position, the gain or loss is determined by the difference between the entry and exit prices, and this difference is settled between the trader and the provider.

Nikola Stock Trading Strategies

Staying informed about market developments is crucial when trading NKLA. An approach that integrates both fundamental analysis and technical analysis can provide a well-rounded understanding of market trends and stock behaviour.

Fundamental Analysis

Fundamental analysis examines economic, political, social, and global influences to gauge potential stock price changes.Two popular methods are examining economic indicators and analysing a particular market sector.

• Economic Indicators are like health check-ups for the economy. Some of these indicators include gross domestic product (GDP), which is the total value of goods and services produced, inflation data, and the consumer price index (CPI), which measures the average change in prices for goods and services. Other important factors include interest rates, central bank announcements, employment data, and international trade information.
• Market Sector analysis can give traders a big-picture view of a particular industry and its assets. This involves studying metrics specific to that industry, such as production cost per vehicle and customer satisfaction, and understanding where the industry is in its life cycle. For fundamental analysis of Nikola Corporation, a trader would primarily focus on the automotive industry, specifically the EV and FCEV sectors.

Technical Analysis

Technical analysis uses historical data and patterns to try to forecast future price movements. With the use of charts and graphs, technical analysis employs various indicators to predict market trends. Among the most popular technical indicators used by traders are:

• Moving Average Convergence Divergence (MACD): The MACD shows trend direction by comparing price movements over time. A positive MACD may indicate a bullish trend, while a negative MACD may signal a bearish trend.
• Relative Strength Index (RSI): The RSI measures the speed and change of price movements to determine if an asset may be overbought or oversold, helping to identify potential reversal points.

Day Trading vs. Swing Trading vs. Position Trading

Your trading style should guide your choice of strategy. When trading NKLA, traders can choose from various strategies to suit their risk tolerance and trading horizon. Day trading, swing trading, and position trading offer distinct approaches to trading Nikola stock.

Day trading involves buying and selling within a single day to capitalise on small price movements, demanding rapid decision-making and market expertise. Swing trading extends this timeframe to days or weeks, allowing traders to speculate on short- to medium-term trends with slightly more flexibility.

In comparison, position trading involves holding stocks for weeks or longer, focusing on long-term price movements based on thorough market analysis, and is ideal for those seeking a more patient strategy with less frequent trading activity. The fees and costs associated with longer-term trading must be factored into risk management plans.

NKLA Trading Hours

Nikola stock is traded on the NASDAQ Stock Exchange. The NASDAQ's regular trading hours are weekdays from 9:30 a.m. to 4:00 p.m. Eastern Time (ET).

Additionally, traders may trade pre-market from 4:00 a.m. to 9:30 a.m. ET, and in the after-hours market from 4:00 p.m. to 8:00 p.m. ET.

*Note that trading hours on the Plus500 platform may differ.

Risk Management for Trading Nikola CFDs

Trading Nikola CFDs comes with a number of potential risks. For instance, gapping, or abrupt price jumps, may reduce your earnings or lead to losses. Liquidity risks, due to factors like unexpected news, can make assets less liquid and lead to additional margin payments. Additionally, market volatility can lead to position closures if there are insufficient funds to cover losses and margin requirements.

CFDs are typically leveraged, meaning your provider lends you funds to make larger trades. While this may increase gains and market access, it can also amplify losses. Losses are calculated on the total trade, not just the margin. If trades go against you, your provider may require additional deposits to cover potential losses, or they may liquidate your position.

For these reasons, effective risk management is essential when trading NKLA CFDs. Platforms like Plus500 offer a range of tools such as using different stop orders, including Close at Profit (Stop-Limit) and Close at Loss (Stop-Loss) orders, designed to assist traders in managing risks. These tools enable you to set predetermined price levels at which your positions will automatically close, either to secure gains or limit losses.

However, it's important to note that, due to possible slippage, these no-cost features do not ensure positions will close at the exact price specified. To address this situation, traders can instead use a Guaranteed Stop, which ensures a position will close at a specified price even in a highly volatile market. This type of order incurs an activation fee, making it a reliable but slightly more costly option for managing risk effectively.

Conclusion: Mastering Nikola Stock Trading

Trading Nikola stock may offer a dynamic opportunity within the clean energy sector, driven by various factors like market sentiment, regulatory changes, and the company's strategic partnerships. By understanding the intricacies of different trading methods and strategies, you can tailor your approach to align with your personal trading objectives and risk tolerance.

If you’re interested in Nikola CFD trading, you can start trading NKLA CFDs with Plus500.

NKLA Trading FAQs

What are the different ways to trade Nikola stock?

You can trade Nikola stock through several methods, including buying shares, trading exchange-traded funds (ETFs), using options, and engaging in contracts for difference (CFDs). Each method offers unique advantages and potential risks depending on your trading strategy and risk tolerance.

What factors influence Nikola’s stock price?

The price of Nikola stock can be affected by various factors, including supply and demand dynamics, strategic partnerships, advancements in clean energy technology, environmental policies, regulatory compliance, and market sentiment.

How does trading Nikola CFDs differ from traditional stock trading?

Trading Nikola CFDs allows you to speculate on price movements without owning the underlying shares and offers the option to leverage your positions. Unlike traditional stock trading, CFDs enable traders to potentially profit from both rising and falling markets, but they also come with higher risks due to the potential for significant losses.