How to Buy Affirm (AFRM) Stock

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Contributor, Benzinga
Updated: May 13, 2021

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As the January 2021 jobs report demonstrated, the recovery in the employment sector has stalled, forcing millions to seek lending services. This is where Affirm Holdings Inc. (NASDAQ: AFRM) enters the picture as a lender that provides installment loans with transparent, consumer-friendly terms.

Affirm debuted in the market from its January 2021 initial public offering (IPO). Shares gained nearly 30%. AFRM stock doubles as an ESG (environmental, social, governance) investment and stands out as a relevant, relatable entity for Millennials and Gen Z.

How to Buy Affirm (AFRM) Stock

If this is your first time in the investment market, you will need to address certain administrative factors before you buy AFRM stock.

For instance, the process of understanding how to buy stocks isn’t quite as simple as finding your target asset and purchasing it. Familiarize yourself with the following terms before pulling the trigger.

  1. Pick a brokerage.

    Above all else, you must first pick a brokerage before you buy AFRM stock. 
    Why? Brokerages serve as intermediaries, connecting market makers with retail investors in a convenient, streamlined process. Therefore, it’s important to have a short list of the best brokers that will suit your needs.
    Fortunately, because of the rise in competition and general interest in stock trading, you can find many standardized incentives to join a particular broker, such as commission-free trading. Today, most online brokers offer this benefit. 
    The trading platform that works best for you comes down to personal choice. If you cherish convenience above all else, then mobile-based trading apps may work for you. However, if you anticipate needing help, you’ll need to go with a broker that offers that option.

  2. Decide how many shares you want.

    After selecting your broker, you must decide how many shares of AFRM stock you wish to purchase. Naturally, this also comes down to personal preference. Market deals transact on share count, not the dollar amount.

    To make the conversion from dollars to shares, simply take the dollar amount you wish to invest and divide that by the market price of the target stock. For instance, if you wish to purchase $1,000 worth of AFRM stock, you are able to buy 7 whole shares ($1,000 / $125.89 = 7.94).

    Some brokers offer you the ability to acquire fractional shares. However, this is not a standardized feature in the brokerage industry. Include it in your criteria for best brokers if you need this feature.

  3. Choose your order type.

    Because stocks typically fluctuate in value during normal session hours, you can’t simply buy shares like you would a product at a grocery store. Instead, you must choose which order type you desire.

    Bid: A bid is the maximum price a buyer is willing to pay for a stock. The bid is always lower than the ask.
    Ask: In contrast, the minimum price a seller will accept is known as the ask. The ask will always be lower than the bid.
    Spread: The difference between the bid and ask price is called the bid-ask spread. Investors profit through speculation that the shares they buy rise in value. On the opposite end, market makers profit from a stock’s sale price (to the investor) and their acquisition price, or the spread.
    Limit order: Limit orders involve buy or sell transactions that execute only at a specific price. This gives you maximum control over your deals. However, you must know that the target stock doesn’t guarantee that you meet your limit order price.
    Market order: Market orders involve buy/sell orders that execute at the next available price. If you submit a market order during normal session hours, the transaction will go through. On the other hand, market orders fulfill at rates disadvantageous to you.
    Stop-loss order: Stop-loss orders function as protective market orders in reverse, best deployed to preserve your portfolio. They exit you out of your position at a specified price or the next available price, whichever comes first. This might give you peace of mind but a gap-down session (a session that opens at a much lower price than the prior day’s close) can automatically dump you out at a catastrophically low price.
    Stop-limit order: Similar to stop-loss orders, stop-limit orders serve as limit orders in reverse. They exit you from your position only at a specified price, offering maximum control and transparency. However, as with limit orders, no guarantee exists that the target stock will reach the stop-limit order price.

  4. Execute your trade.

    Now that you have a background on trading basics, you must execute your trade. Determining which order type to use may come down to session dynamics.
    For instance, if AFRM stock trades wildly and you must have a position, then a market order guarantees you that exposure. However, if you want to control your entry and exit points exactly, then the limit order is the best selection.

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AFRM Stock History

As investor sentiment demonstrates, the bullish narrative for Affirm isn’t just on paper. People have been willing to fork over their money to push AFRM stock higher. Initially priced at $49 on Affirm’s first day of trading, shares closed at a whopping $97.24.

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On one hand, this demonstrates how deep connections can get you into favorable offerings ahead of the crowd. Affirm closed at $125.89 on the February 12 session. This represents a sizable 29.4% gain from its first closing price.

Pros to Buying AFRM Stock

Not only does Affirm point to specific gains, but you may also want to consider other reasons for buying AFRM stock:

  • Consumer-friendly approach: Credit cards have a poor reputation due to sky-high interest rates because collateral won’t protect them in case of default. Affirm offers transparent, flexible terms, making them ideal for almost everyone.
  • Catalyst for the economy: A low interest rate-environment naturally incentivizes spending because it penalizes savings. However, even with this catalyst, the personal savings rate remains at multi-year highs. That’s why a platform that reduces the barrier to spending on credit could help revitalize the consumer economy.
  • Better solutions: The share of unbanked households in the U.S. in 2019 amounted to 5.4%. This figure should rise if the recession continues. Affirm delivers convenient lending services that help keep hurting households connected to the broader financial system.

Cons to Buying AFRM Stock

Long-term viability, economic pressure and low borrowing demand may give you pause:

  • Question about longer-term viability: Affirm’s consumer-first approach might put profitability second. If so, that’s not going to appeal to investors farther down the line.
  • Economic pressure overwhelms: While Affirm presents an opportunity to revitalize consumer spending through favorable terms, if the economy continues to worsen, the incentive to spend on nonessential goods and services will likewise fall.
  • Little borrowing demand: In the third quarter of 2020, net interest margin for all U.S. banks fell to the lowest point in recorded history at 2.8%. This means the banking sector reflects a lack of people seeking loans. Logically, this presents a challenge for any lending services company.

Fintech that Works for the People

The surge in connectivity innovations resulted in tremendous economic activity over the last several years. Affirm’s fresh approach to lending services means the company might disrupt the traditional credit industry.

The robust rise in AFRM stock since its IPO testifies to strong investor sentiment. Affirm’s financial solutions may play a pivotal role in restoring consumer confidence.