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How to Trade Cannabis Stocks

Plus500 | Thursday 16 September 2021

The Cannabis industry has seen tremendous growth as public support for medical and recreational marijuana has risen. This has led to an increase in the number of public companies that research and sell Cannabis and Cannabis-related products. Traders looking to invest in Cannabis stocks may wish to gain further information prior to opening a position. Therefore, we have collected details regarding many of the various investment options available.


Trading Cannabis Using Stock Brokerages

Many companies have begun to sell stocks since Cannabis products became legal in several U.S. states and territories, as well as in a number of other countries around the world. The industry has a projected value of approximately $22 to $26 billion as of 2021, and that market is expected to double by 2025. Marijuana stocks are sold by several broad categories of participants: growers, biotech firms, suppliers and investment groups. Some of the companies that have taken advantage of this opportunity include Tilray (TLRY), Aurora Cannabis (ACB), Cronos Group (CRON), and Canopy Growth (CGC)

Traders who wish to speculate on Cannabis can purchase stocks directly from brokerages. However, stock purchases typically involve a commission and have strict rules about when orders can be opened and/or closed.

Cannabis Stock CFDs

You can also choose to trade Cannabis Stocks as CFDs. With CFDs you are not trading instruments directly. Instead, you trade the price difference between when you open a position and when you close a position. 

CFDs let you trade on both positive and negative price movements. So, for example, if you believe that the price of Tilray stock will go up, you would place a buy order. If you turned out to be right, your profit would be the amount that the stock price went up. If you turned out to be wrong, your loss would be the amount that the stock price went down. On the other hand, if you felt the price of Tilray stock would go down, you would place a sell order. Then your profit would be equivalent to the amount that the price dropped, while your losses would equal any price increase.

You also have the ability to trade using leverage when working with Cannabis CFDs. This means you can open a trade by putting down a portion of the position’s value. Your profits would be determined based on the entire position, and your losses would also be based on the value of the entire position.

For example, say Aurora Cannabis was trading at $8.40 with a leverage of 1:4. This means that you could open a position by putting $2.10 down for your initial margin. Then your profits and losses would be calculated as if you had put the entire $8.40 down at the beginning.

Cannabis Indices

Traders can also participate in the Cannabis market by buying and selling CFD shares from Cannabis indices, such as the Cannabis Stock Index (BGCANG) offered by Plus500. With an index, you are trading on a basket of Cannabis stocks, so the potential risks and rewards are spread out over a number of different companies. When the indices are combined with derivative trading products like CFDs, you still benefit from the ability to trade using leverage, which increases your exposure to both profits and losses.

Cannabis stocks are an excellent way to gain exposure to one of the markets newest asset classes. There are several ways to trade Cannabis stocks if you decide that these instruments are a good choice for your portfolio.

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This information is written by Plus500 Ltd. The information is provided for general purposes only, and does not take into account any personal circumstances or objectives. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. No representation or warranty is given as to the accuracy or completeness of this information. It does not constitute financial, investment or other advice on which you can rely. Any references to past performance, historical returns, future projections, and statistical forecasts are no guarantee of future returns or future performance. Plus500 will not be held responsible for any use that may be made of this information and for any consequences that may result from such use. Hence, any person acting based on this information does so at their own discretion. The information has not been prepared in accordance with legal requirements designed to promote the independence of investment research.

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