Alibaba Trading Guide: How to Trade BABA Shares CFDs

Trading Alibaba stock (BABA) can offer an opportunity to engage with one of the world’s largest e-commerce and technology companies. Understanding what drives Alibaba's stock values requires an exploration of a diverse set of factors, from its financial performance and regulatory environment to broader economic trends and competitive pressures.

Whether you’re seeking strategies to navigate Alibaba’s stock price movements or to learn about the essential aspects of trading BABA CFDs, this guide can help you make more informed trading decisions.

Understanding Alibaba: A Brief History

Initially characterised as China’s version of Amazon (AMZN), Alibaba Group Holding Ltd. is a multinational conglomerate specialising in e-commerce, retail, the internet, and technology.

Alibaba was created in 1999 in Hangzhou, Zhejiang, China, by Jack Ma and 17 of his friends, launching as a small business-to-business (B2B) marketplace. Later that year, the company secured its first major capital infusions from Goldman Sachs and SoftBank, receiving US$5 million and $20 million, respectively. In 2002, Alibaba achieved profitability for the first time.

Starting in 2003, Alibaba launched several of its most famous brands, including the retail marketplace Taobao, which facilitated B2B, client-to-client (C2C), and business-to-client (B2C) transactions. The company also introduced the online payment platform Alipay, the instant messaging tool Aliwangwang, and the digital marketing platform Alimama.com.

Following its acquisition of digital mapping provider AutoNavi on July 17, 2014, Alibaba went public on the New York Stock Exchange (NYSE) on September 19, 2014, under the ticker symbol BABA. With an opening price of $68 U.S. dollars (USD) per share, this initial public offering raised $21.8 billion.

The company continued to expand through numerous acquisitions, such as the South China Morning Post in 2015, Eleme in 2018, NetEase’s Koala in 2019, and Keruyun in 2020.

In 2022, Alibaba's online retail properties accounted for nearly a quarter of the global e-commerce market, surpassing Amazon's market share at the time. However, as of 2023, Alibaba’s market value had dropped to USD 216.6 billion, nearly 80% less than its peak. This significant decrease was largely attributed to a hoped-for recovery in the Chinese economy that failed to materialise and competition from more affordable competitors like PDD Holdings, among other factors. This highlights the importance of staying updated with the latest market trends and company performance when considering trading Alibaba stock.

Today, Alibaba operates a diversified array of businesses across various sectors, making it one of the largest international retailers and e-commerce providers involved in Internet and artificial intelligence (AI) technologies by gross merchandise volume (GMV). Alibaba also functions as a global venture capital and investment corporation.

By 2016, the group had exceeded ¥3 trillion (approximately USD 450 billion) in GMV. According to the group's annual report, for the fiscal year 2022, the total GMV transacted in the Alibaba Ecosystem had risen to ¥8,317 billion (US$1,312 billion).

Why Trade Alibaba Stock?

Alibaba operates a diversified business model. Beyond e-commerce, the company operates in cloud computing, digital media, entertainment, and financial technology (fintech) through its affiliate Ant Group. This diversification can help mitigate risks and provide multiple revenue streams.

Historically, Alibaba has demonstrated strong financial performance, showcasing significant revenues and growth rates. The company’s heavy focus on research and development helps keep it at the forefront of technological innovation, particularly in areas like AI and blockchain. While past performance does not guarantee future success, these factors may contribute to Alibaba’s potential for continued growth and market relevance.

However, it’s important to realise that Alibaba operates in highly competitive markets and faces strong competition from companies like JD.com (JD), Pinduoduo, and Tencent (0700.HK). Additionally, ongoing tensions between the United States and China may pose future challenges, including the risk of delisting from U.S. stock exchanges. Traders must be aware of these factors and their potential impact on Alibaba’s stock performance.

While Alibaba is expanding its global footprint, a significant portion of its revenue is still generated in China. Consequently, any economic downturn or major shifts in consumer behaviour within China could adversely affect the company. Understanding these dynamics is crucial for traders considering Alibaba stock.

What Factors Influence BABA's Share Price?

Several key factors may drive Alibaba's share price up or down, shaping the dynamics traders must consider. Those include:

Chinese Regulatory Environment

The Chinese government's regulatory policies and decisions can significantly impact Alibaba's operations, financial health, and trader sentiment. For example, as part of its 2021 “Big Tech Crackdown,” the Chinese government intensified its influence over tech companies, fining Alibaba a record US$2.8 billion on April 10, 2021, as part of its antitrust probe. These regulatory challenges, especially in the tech sector, can create significant movement in Alibaba's stock price.

Financial Performance and Earnings Reports

Alibaba's quarterly earnings reports, revenue growth, and profitability can also directly influence its stock price. Strong financial performance may boost trader confidence and potentially drive stock prices up, while poor performance may have the opposite effect. For instance, in the December 2021 quarter, Alibaba’s revenue increased by 10% year-over-year, perhaps driven by solid results in its China commerce segment. However, political uncertainties overshadowed these positive numbers.

Company News

Significant company news, such as corporate restructuring, mergers, and acquisitions, may also impact Alibaba’s stock price. On March 29, 2023, Alibaba’s stock jumped 15% due to the company’s announcement of a major corporate structure overhaul, which traders interpreted as potentially positive for future growth. These strategic changes can shift trader perception and stock price movements.

Ways to Trade Alibaba Stock

Various methods exist to trade Alibaba stock, each with unique benefits and risks. Your choice will largely depend on your trading goals and risk tolerance.

Alibaba Shares

One approach to trading BABA is purchasing shares, also called equity or stocks, which gives you direct ownership of Alibaba. These shares are available on the NYSE and the Hong Kong Stock Exchange, offering a stake in the company's performance and market trends.

Buying shares allows traders to gain direct exposure to Alibaba's financial performance and market fluctuations.

Alibaba ETFs

Another popular strategy for speculating on BABA stock is through exchange-traded funds (ETFs) that include Alibaba and other companies, mirroring specific market indices or sectors. One example of an ETF that includes Alibaba in its portfolio is KraneShares Trust ETF (KWEB), which follows publicly traded internet companies based in China.

ETFs provide the convenience of being traded like stocks throughout the trading day but come with considerations like transaction fees and expense ratios.

Alibaba Share CFDs

Trading contracts for difference (CFDs) is an option for those who prefer to speculate on Alibaba's price movements without actually owning shares.

Unlike regular stock trading, CFDs enable speculation on both rising and falling markets, offering greater flexibility but also higher risk. With CFDs, traders can speculate on the price direction of BABA stock, enabling trading opportunities even in declining markets.

CFDs, ETFs, and share trading each offer distinct ways to take advantage of price movements in financial markets, and all can form part of your portfolio.

How to Trade Alibaba Stock with CFDs

Engaging in BABA CFD trading means speculating on Alibaba’s stock price movements without owning the stock itself. This is achieved by trading on the price differences between the CFD contract's opening and closing values.

CFD traders can utilise stock charts to analyse trends and help determine when to execute Buy or Sell orders. If traders expect Alibaba's stock price to rise, they can 'go long' by purchasing a CFD. Conversely, if they anticipate a price decline, they can 'go short' by selling a CFD.

The flexibility of taking both long and short positions allows traders to potentially benefit from market movements in either direction. However, this can be particularly risky during volatile periods, and such conditions may not be suitable for all traders.

One significant feature of BABA CFD trading is the ability to use leverage. This means traders can open positions by depositing only a fraction of the asset's total value, known as margin. Margin allows traders to control larger positions with smaller amounts of capital. However, while leverage can potentially magnify profits, it can also increase the possibility of substantial losses.

Strategies for Trading Alibaba CFDs

To trade Alibaba CFDs, traders may adopt a blend of technical analysis and fundamental analysis strategies. These approaches can provide a comprehensive view of market conditions and the company's financial health.

When trading Alibaba CFDs, employing technical analysis can provide valuable insights. Key techniques include identifying support and resistance levels, which help traders predict potential price movements. Using moving averages, such as the 50-day and 200-day moving averages, can indicate trend direction and potential reversal points. Additionally, the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are useful tools for spotting overbought or oversold conditions and momentum changes.

Incorporating fundamental analysis is equally essential for a comprehensive trading strategy. For Alibaba, staying updated on earnings reports, revenue growth, and key performance indicators can offer a deeper understanding of the company's financial condition. Monitoring macroeconomic factors such as China's economic policies, consumer spending trends, and global trade dynamics can also influence Alibaba's stock performance.

Combining technical and fundamental analysis can enhance trading decisions. By utilising chart patterns and financial data, traders can develop a well-rounded approach to navigating volatility and potentially capitalise on opportunities in Alibaba's stock movements.

Risk Management in Trading Alibaba CFDs

Trading BABA CFDs involves a number of potential risks. For instance, price gapping can occur, where the stock price jumps abruptly, potentially resulting in reduced profits or significant losses. Market liquidity risks, which can be influenced by unexpected news or events, may lead to additional margin requirements and trading challenges. Moreover, market volatility can force the closure of positions if there are insufficient funds to cover losses and margin obligations.

For these reasons, effective risk management is crucial when trading Alibaba CFDs. Platforms like Plus500 offer various risk management tools, including stop orders like Close at Profit (Stop-Limit) and Close at Loss (Stop-Loss) orders. These orders can help traders manage their risks by setting predetermined price levels for closing positions. These tools can secure gains or limit losses by automatically closing positions when prices reach specified levels.

However, these tools do not guarantee your position will close at the exact price you’ve specified due to potential slippage. To mitigate this, traders can use a Guaranteed Stop, which will close a position at the specified price, even in volatile market conditions. This feature involves an activation fee but provides another effective tool for managing risk.

BABA Trading Hours

Alibaba stock is listed on the New York Stock Exchange, allowing it to be traded on weekdays between 9:30 a.m. and 4:00 p.m. Eastern Time (ET).

Beyond those regular trading hours, BABA stock can also be traded during extended hours. The pre-market session runs from 4:00 a.m. to 9:30 a.m. ET, offering an early window for trading activities, while the after-hours session extends from 4:00 p.m. to 8:00 p.m. ET. These extended hours provide more opportunities for traders to react to news and events outside the standard market times.

It's important to note that trading hours on the Plus500 platform may differ.

Conclusion: Mastering Alibaba Stock Trading

Trading Alibaba stock involves understanding the company's diversified business model and significant market presence. By analysing the key factors that influence its stock price and employing a blend of technical and fundamental analysis, traders can make informed decisions.

Effective risk management and awareness of trading hours are also essential components for navigating trades.

With the right tools and insights, traders can better understand potential market opportunities when trading BABA CFDs.

If you’re interested in Alibaba CFDs, you can start trading BABA CFDs on Plus500.

FAQs About Trading Alibaba CFDs

How does leverage work in Alibaba CFD trading?

Leverage in CFD trading allows traders to open larger positions by depositing a fraction of the asset’s total value, known as margin. While leverage can amplify gains, it can also increase the potential for substantial losses.

What strategies can be used to trade Alibaba CFDs?

Trading strategies for Alibaba CFDs involve a blend of technical and fundamental analysis. Key techniques include identifying support and resistance levels, using moving averages, and monitoring macroeconomic factors and company earnings reports.

What are the main factors that can influence BABA's stock price?

Alibaba's stock price can be influenced by several factors, including the Chinese regulatory environment, the company’s financial performance and earnings reports, geopolitical risks, and significant company news like mergers and acquisitions.