Reddit Share Price Drivers: How to Trade RDDT Stock

Reddit (RDDT), a global platform built on user-generated content and community engagement, can offer unique trading opportunities. To trade Reddit shares, you may want to familiarise yourself with Reddit's business model, the factors influencing RDDT stock price, and trading basics.

TL;DR

• Reddit is a social platform created in 2005 by Steve Huffman and Aaron Swartz.
• It lets users share content, discuss topics, and vote on posts. It's known for its community-driven attitude and popular "Ask Me Anything" format.
• If you’d like to trade Reddit (RDDT) stocks, you can engage in active trading through derivatives like Contracts For Difference (CFDs).
• Investing in RDDT shares means buying and holding shares for long-term growth.

What Is Reddit?

Reddit is a large online community built around user-created forums called subreddits. Users share and vote on content, from breaking news to viral memes. The platform's name is a shortened form of "read it," reflecting its original focus on link-sharing and discussions.

In a groundbreaking moment in 2021, Reddit gained global attention when a group of retail traders, organised on the platform's r/WallStreetBets subreddit, collectively drove up the stock price of GameStop (GME), an American retail gaming company.

This coordinated effort squeezed short-sellers, who had bet on the stock's decline, leading to a historic market event and sparking a broader "meme stock" phenomenon.

What Can Move RDDT Stock Price?

Reddit’s IPO came 9 years after its creation, and it is a relatively new player in the public market, having gone public in March 2024. As such, it's still navigating the complexities of the stock market. Still, several key factors can influence its stock price, including the following:

• Ad Revenue Growth: Reddit's ability to monetise its user base through advertising is crucial for its financial performance.
• Ad Formats and Innovation: The success of new ad formats and targeting capabilities can impact revenue and investor sentiment.
• Subreddit Growth: Expanding niche communities can attract new users and enhance user engagement.
• Economic Conditions: Economic downturns can impact advertising spending and user behaviour.
• Financial Performance: The earnings season is always a key moment for a company. By analysing Reddit's financial performance like Earnings Per Share (EPS), traders can make more informed decisions about buying, holding, or selling RDDT stock.
• Market Share: Reddit's ability to compete with other social media platforms for users and advertisers can impact its market share and its stock price.
• Content Moderation: Content moderation policies or regulatory scrutiny changes can affect user trust and advertiser confidence.
• Privacy Concerns: Data privacy regulations can impact user behaviour and the company's ability to collect and use user data.
• Professional Analysts' Opinions: Analysts' opinions and price targets can influence traders' sentiment and Reddit stock price movements.

Reddit Share Price History

Reddit entered the public market on 21 March 2024. The company's Initial Public Offerings (IPOs) were met with strong trader interest, especially from those wanting to trade new companies in the tech industry and social media sector.

Its shares surged 48% to $50.44 on the first trading day, valuing Reddit at $9.5 billion. Reddit's IPO raised approximately $750 million for the company.

Since its debut, Reddit's stock price has exhibited volatility. It has experienced a general upward trend, gaining around 15% since the IPO as of mid-August 2024. However, the stock price has fluctuated, reaching a high of $78.08 in July 2024 and a low of $37.35 in April 2024.

Reddit CFD Trading: The Upsides and Downsides

CFD trading can offer both potential rewards and risks you need to be aware of before getting into CFD stock trading, so you can decide what the best option for you is between CFD share trading and share trading.

What Are CFDs on Shares?

A Contract for Difference (CFD) is a financial instrument that allows you to speculate on the price movement of an underlying asset, like Reddit shares, without actually owning the asset itself.

With CFDs, you're essentially speculating on whether the market price will rise or fall. If you believe the price of Reddit shares will increase, you can open a long position. Conversely, if you think the price of Reddit shares will decrease, you take a short position.

CFDs operate on margin and leverage, meaning you only need to deposit a fraction of the full value of the trade on Reddit to open a position on the stock. However, leverage can be risky as it can magnify both potential profits and losses.

The Pros and Cons of CFD Trading

Trading Reddit (RDDT) CFDs offers both potential rewards and risks.

Upsides of Trading Reddit with CFDs:

• Flexibility: Trade both rising and falling Reddit share prices by going long or short.
• Portfolio Diversification: Incorporate Reddit into a wider portfolio.
• Accessibility: Due to leverage, with CFD trading you can gain larger exposure to an underlying instrument with lower initial investment than traditional stock ownership.

Downsides of Trading Reddit with CFDs:

• Leverage Risks: While leverage can amplify profits, it equally magnifies losses, which can lead to significant losses.
• No Ownership: CFD share traders don't own the underlying shares, missing out on potential voting rights.
• Market Volatility: Reddit, as a relatively new public company, may experience heightened price fluctuations.
• Overnight Fees: Holding CFD positions overnight often incurs rollover fees, which can impact profitability.

How to Trade Reddit Stocks with CFDs with Plus500

Now that you understand the basics of CFDs on shares, we can explore how to apply this financial instrument to speculate on Reddit's stock price.

CFD Trading Strategies on Reddit Shares

Trading Reddit (RDDT) CFDs offers various approaches for different trading styles:

• Day traders focus on very short-term price movements, aiming to profit from Reddit's intraday price fluctuations. With day trading, traders often employ technical indicators and tools to identify potential trading opportunities on different types of charts.
• Swing traders hold positions for a few days or a few weeks, seeking to capitalise on Reddit's bullish and bearish market swings. With swing trading, traders may consider a combination of technical and fundamental analysis to identify potential entry and exit points.

Remember, both day trading and swing trading with CFDs involve significant risks, which requires managing risk effectively.

Please be aware of the fees and charges associated with opening and maintaining a CFD position.

Risk Management While Trading CFDs on Reddit Stock

Trading CFDs on Reddit stock, or any asset for that matter, requires risk management tools to better protect your capital and increase your chances of getting favourable outcomes over the long term.

Here are some risk management tools and stock market trading tips to consider when thinking about trading Reddit shares with CFDs:

• Understanding Risk Management: Do not underestimate the importance of knowing what risk management is and how it can help you potentially enhance your trading success.
• Use Stop-Loss and Take-Profit Orders: These orders close your position automatically when the price reaches a predefined level, either limiting losses (stop-loss) or securing profits (take-profit).
• Explore Different Stop-Loss Orders: Your CFD provider likely offers various stop-loss options as risk management tools. Familiarise yourself with these tools, such as guaranteed stop-loss and trailing stop orders, to find the best fit for your trading strategy.
• Think About Position Sizing: This helps you determine the appropriate amount of capital to allocate to each Reddit trade based on your risk tolerance, your trading experience, and your trading capital.
• Prioritise A Favourable Risk-Reward Ratio: Consider the potential profit compared to the potential loss on each Reddit trade (risk/reward ratio) based on your trader profile and risk tolerance.
• Use Leverage Carefully: Understand the magnifying effect of leverage on both profits and losses. You shouldn't feel pressured to trade on asset classes with high leverage rates. You can start by trading asset classes with lower leverage rates and then only gradually move to asset classes with higher leverage rates as you gain experience.
• Consider Diversification: Think about portfolio diversification by spreading your trading positions across different assets, industries, currencies, countries, and even trading strategies, with the aim to protect your capital against market fluctuations.
• Keep Learning: Continuous learning is essential for trading success. Stay informed about news and market insights, economic indicators, company news, and trading techniques.

Interested in trading Reddit shares with CFDs? You can start trading RDDT CFDs with Plus500.