Amazon Trading Guide: How to Trade Amazon Shares CFDs

The American giant Amazon (AMZN) is one of the largest companies in the world. It is also a popular stock, as it belongs to some of the hottest stock sectors, such as e-commerce, cloud computing, and artificial intelligence (AI), and has demonstrated impressive gains over the years. Between 2014 and 2024, Amazon's share price increased by 975%, while the S&P 500 increased by 167% over the same period.

This article will delve into the advantages and risks of trading Amazon shares, as well as the best ways to trade Amazon shares with Contracts For Difference (CFDs):

TL;DR

• Amazon is a diversified international tech company mostly involved in e-commerce, cloud computing and streaming.
• Amazon was incorporated in 1994 and went public in 1997 on the NASDAQ.
• The company belongs to groups of American big tech companies like the FAANG and MATANA stocks.
• As of the 1st quarter of 2024, online stores, third-party seller services, and Amazon Web Services (AWS) are the largest net sales segments of the firm.
• Advertising, subscription, and physical stores are the other operating segments.
• Its stock growth price over the years, dominant position in e-commerce, business and innovation leadership, as well as diversification through various businesses are some of the reasons why traders are interested in Amazon.
• Conversely, the evolution of shopping and spending online habits, harsher competition, tougher regulations, as well as the highly speculative and volatile nature of Amazon’s share price are some of the risks.
• Trading Amazon shares over the short term can be done via CFDs with various share trading strategies such as trading economic data, breakout trading, and support and resistance trading, among others.

Brief Overview of Amazon's Business and AMZN Share Milestones

Founded in 1994, Amazon revolutionised shopping by pioneering e-commerce, but its reach now stretches far beyond these beginnings, encompassing cloud computing, online advertising, streaming entertainment, logistics, and artificial intelligence.

History of Amazon's Stock Price

Amazon's share price has skyrocketed over 246,166.67% since its 1997 initial public offering (IPO). On May 17, 2024, it traded around $184.70, a massive jump from the initial offering price of $0.075 per share (price adjusted for the 4 stock splits that occurred in 1998, 1999 and 2022).

Throughout its history since going public, the Amazon (AMZN) share price hasn't fallen below its IPO price. It has risen over time, reaching its highest level ever at $191.70 on May 8, 2024.

If you'd like to get more details about Amazon and the evolution of Amazon share price, read our article 'Amazon Stock (AMZN) Price Guide: What Drives Amazon's Share Price?'

Why Are Traders Potentially Interested in Trading Amazon Shares?

Let's dive into the factors that often make Amazon shares attractive to traders:

Largest Online Retailer and Marketplace & Business Leadership

Amazon's dominance in e-commerce, as both a leading online retailer and marketplace, often make it a magnet for traders. This unrivalled position, combined with deep industry expertise and a globally recognized brand, may attract investors and traders seeking exposure to powerful and influential companies.

High Barrier to Entry

Amazon's e-commerce dominance is often seen as fortified by a series of high barriers to entry. The size of its customer base fuels significant economies of scale, granting them cost advantages that newcomers simply can't compete with.

Additionally, Amazon's globally recognised brand, synonymous with convenience and product selection, fosters deep customer loyalty. This established trust makes it challenging for new players to gain a foothold.

Amazon's marketplace further strengthens its position through network effects. A large seller base often attracts more buyers, and vice versa, creating a self-reinforcing cycle that's difficult for new entrants to break.

The company's vertical integration strategy also contributes to its dominance. By controlling various stages of production and distribution (think proprietary brands, manufacturing, logistics, warehousing, delivery, cloud computing, and even content creation), Amazon enjoys cost advantages that most newcomers struggle to match.

Finally, Amazon can leverage vast customer data to personalise the shopping experience of its users with targeted recommendations. Replicating this level of personalisation, without a comparable data pool, proves nearly impossible for new competitors.

Popular Growth Tech Stock

Amazon is often considered a powerful growth stock with an appeal that lies in the convergence of multiple high-growth sectors, such as e-commerce, streaming, artificial intelligence, and online ads, that can support the idea of a significant future earnings growth.

One of the Largest Companies in the World

After the other retail giant Walmart (WMT), Amazon is the second biggest company by revenue as of January 2024. It is also among the largest companies in the world by market capitalisation alongside US big tech companies like Microsoft (MSFT), Apple (AAPL), Alphabet (GOOG), Nvidia (NVDA), and Meta Platforms (META).

Artificial Intelligence (AI) Hype

Amazon isn't just a big tech stock, it can also be considered an AI stock. The American company is a major player in the AI field, especially thanks to its AWS business and various acquisitions made to support its AI technologies, such as Anthropic in March 2024.

Overall, the company is implementing and developing AI technologies across its various businesses to increase its efficiency, enhance customer experience and strengthen its competitive advantage, potentially leading to better customer satisfaction and increased sales.

What Should Traders Be Careful of When Trading Amazon Shares?

After we've talked about some of the reasons why traders may decide to trade Amazon, let's consider the potential challenges and risks associated with trading in the company:

Evolution of Consumer Preferences & Shopping Habits

While Amazon is an online retail titan, maintaining this dominance requires constant adaptation, innovation, and investment. Consumer habits are a moving target that needs constant monitoring to be sure the firm is able to follow the online media consumption and shopping habits of customers.

Competition From Other Retails & Specialty Retailers

Another challenge for Amazon's dominance in online retail is squeezing out significant further growth in this core market. Established competitors like Walmart and Target (TGT) are rapidly improving their e-commerce experiences, making it harder for Amazon to capture new market share.

Additionally, venturing into new retail categories might not be a guaranteed success. Consumers might gravitate towards established specialty retailers with curated selections and deeper expertise in those specific areas.

Amazon's business being diversified also presents a double-edged sword. While the company's presence across sectors like e-commerce, cloud computing, and streaming strengthens its overall position, it also exposes them to a wider range of competitors. For example, Microsoft and Google are major players in cloud computing, directly challenging Amazon's AWS dominance.

Compliance, Regulation & Lawsuits

Amazon faces a complex web of legal and regulatory challenges, both domestically and internationally. These challenges, ranging from data privacy concerns and antitrust investigations to intellectual property battles and questionable advertising practices, can all significantly impact the company's future.

Potential Overvaluation of Amazon Share Price, Volatility & Speculation

Some analysts consider Amazon's stock price overvalued or speculative, fueled by its volatility. While the stock price has seen impressive gains over the last couple of years (75% in 2023 and up 22% year-to-date as of May 20, 2024), this volatility also raises concerns about potential overvaluation, which means that the risk of loss is higher than with low volatility stocks.

How to Trade Amazon (AMZN) with CFDs

Many retail traders choose CFDs on shares to speculate on Amazon's (AMZN) short-term price movements.

Buying Amazon Shares vs Trading CFDs on Amazon

When you buy actual Amazon shares (AMZN), you become a shareholder in the company. To buy these shares, you'll need to invest the full upfront cost of the shares, aiming to profit from their price increase over time.

In contrast, using CFDs (Contracts for Difference) allows for short-term speculation on Amazon's stock price movements without owning the shares themselves.

This type of trading is suited for both bullish and bearish markets (upward and downward trends). Additionally, a key feature of CFDs is leverage, which means you only need a smaller upfront investment, called the margin, to control a larger position. But leverage can magnify both your potential profits and potential losses, which is risky.

A Simple Example of a CFD on Amazon Shares

Let's say that you want to buy 10 Amazon (AMZN) shares at $184 each. The total value of this investment would be $1,840.

If you trade Amazon stocks with CFDs at 1:5 leverage, you would need to put up a margin of 20% (which is $368) to open a position on 10 Amazon shares worth $1,840:

• Positive outcome: you make a profit: Let's say that the price of Amazon shares increased to $200 when you decide to close your CFD positions, you will then pocket the difference as a profit*.
• Negative outcome: you make a loss: Conversely, if the price of Amazon shares falls to $178 when you decide to close your position, you will incur losses*.

It's important to note that your profits and losses will be magnified by leverage when you use CFDs.

*You also need to take into consideration Plus500 trading fees.

5 Advantages of Trading Amazon with CFDs

Here are some potential advantages of using CFDs to trade Amazon shares:

1. Long and Short Positions: CFD products allow you to trade both bullish and bearish markets, which means that you can trade Amazon shares when its price is moving up or down.
2. Small Initial Capital: With CFDs, which are margin traded, you can start with a relatively small amount of capital.
3. Convenient Online Trading: Most CFD providers offer one online trading platform to its users (or more), which makes it relatively accessible to trade Amazon online from wherever you want with an Internet connection, and whenever you want when the markets are open.
4. Diversification: It is usually possible to trade more than just the stock market with CFD providers like Plus500, as they often offer other tradable asset classes. In addition to shares CFDs, you can trade indices, ETF and more alternative asset classes, such as Forex, commodities, and cryptocurrencies CFDs.
5. Multiple Asset Classes in One Platform: You can trade various assets within the same trading platform, like the S&P 500, the CAC 40, the Hang Seng, the AUD/USD, the EUR/JPY and the GBP/USD. It is also possible to trade assets like cocoa, heating oil, gold, Bitcoin, Ethereum, and Polkadot.

4 Risks of Trading Amazon with CFDs

It's also important to be aware of the risks involved in trading CFDs before you start trading Amazon shares with CFDs:

1. Volatility & Speculation: Amazon shares are highly speculative and volatile, which can increase the risk of loss.
2. Leverage: When trading Amazon with CFDs, you can use leverage, which tends to amplify any price movements. When you're trading in unfavourable market conditions, using leverage means that you can lose a larger amount of money relatively quickly compared to non-leveraged financial products.
3. No Say in the Company’s Business: Trading Amazon (AMZN) shares through CFDs doesn't grant you the same level of involvement as a traditional shareholder (voting rights…), because you do not own any underlying shares.
4. Potential Overnight Fees: If you decide to keep your CFDs on AMZN shares overnight, you are likely to pay Overnight Funding Fees.

How to Trade Amazon Shares

A thorough understanding of Amazon's business model, growth opportunities, and potential risks is important before you select the right trading approach for you. Remember, there's no one-size-fits-all approach, and the best strategy should align with your goals and risk tolerance.

Long-term investment strategy may be ideal for those who believe in Amazon's long-term potential. This strategy involves buying and holding shares for an extended period, mostly aiming to benefit from share price appreciation. Fundamental analysis, which examines financial statements, news, and industry trends, is often used to assess Amazon's intrinsic value and determine its overall health.

Short-term trading, used with Amazon share CFD trading, is an approach often used by experienced and risk-tolerant traders to capitalise on Amazon's short-term price fluctuations. Technical analysis, focusing on historical price charts and technical indicators, helps identify potential entry and exit points for short-term trades like day trading.

Now that you are aware of the potential advantages and risks surrounding Amazon share trading, you may start trading Amazon on Plus500.

Amazon Trading — Frequently Asked Questions (FAQs):

Is Amazon a buy, hold, or sell?

The decision to buy, sell or accumulate Amazon shares depends on your trading strategy, risk tolerance and goals, as well as the overall economic context and growth prospects. Considering how factors like consumer spending habits, advertising trends, legal challenges, competition, and Amazon's future profitability might affect the stock price, should also be important aspects to take into account.

How can I trade Amazon’s stock price?

There are a range of ways you can trade Amazon (AMZN) share price depending on your profile, such as buying real Amazon shares, using Contracts For Difference (CFDs) on Amazon shares, and trading Exchange-Traded Funds (ETFs) that include Amazon.

What kind of trading strategies can I use to trade Amazon shares over the short term?

Short-term trading strategies to trade Amazon (AMZN) shares commonly include day trading based on news events and swing trading capitalising on price breakouts or trading ranges.

How can I trade Amazon Share CFDs with Plus500?

Before you start trading CFDs with Plus500, learn more about CFDs and create your trading plan according to your profile. After that, you can practise on a Plus500 demo account to learn how to trade with Plus500 and test your trading strategy in a virtual trading environment before trading CFD shares with real funds.

Who Are Amazon's Main Competitors?

From traditional stores like Walmart to online marketplaces like eBay (EBAY), and even in the cloud computing space with Microsoft and Google, Amazon faces several competitors.