How to Buy Nikola Stock (NKLA)

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Contributor, Benzinga
Updated: August 19, 2021

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Banking simultaneously on the wild success of electric vehicle-related businesses and the phenomenon of special purpose acquisition companies (SPACs), Nikola (NASDAQ: NKLA) enjoyed a wild boom last year as its valuation soared. However, another boom occurred, this time an unpleasant one for Nikola stock.

The first warning came when many analysts expressed skepticism of the company, which by its name alone was taking potshots at EV giant Tesla (NASDAQ: TSLA). Primarily, the issue was that without hard production numbers, Nikola stock was essentially an “aspirational” investment — great for potential upside but not necessarily confidence-inspiring for mainstream investors.

But short-selling investment fund Hindenburg Research delivered the ultimate body blow, declaring Nikola an intricate fraud and led to Nikola CEO Trevor Milton’s resignation. NKLA shares tumbled initially but later traded all over the map.

Still, social media forums decided to pile into Nikola stock as an act of rebellion. Is this enough to save an otherwise incredibly speculative stock?

How to Buy Nikola Stock

While you can purchase shares of Nikola stock like any other standard publicly traded security, you must first ask yourself if you can handle the volatility risks. True, NKLA is levered to the burgeoning and increasingly popular EV market. However, that alone won’t support the equity unit’s trajectory.

Learn more about how to buy Nikola stock if you’re all in.

  1. Pick a brokerage.

    Thanks to the advancements in connectivity technologies along with growing consumer interest, you now have more choices than ever regarding online brokerages. From your traditional desktop-based platform to mobile trading apps, you can access whatever format among the best brokers works best for your needs.

    Know that no online brokerage functions the same. Although rising competition has standardized some features (commission-free trading in particular) brokerages often differ on their accessibility to certain markets and investment vehicles like options trading.

  2. Decide how many shares you want.

    While investing quickly becomes a straightforward process, you should know that the stock market operates under a specific set of rules and terminology. For instance, you don’t transact deals on how much you pay in dollar terms — it’s based on share count.

    The conversion is easy. Simply take the dollar amount you wish to spend and divide that by the current market price of the stock. For instance, if you wish to buy $1,000 of Nikola stock, you will be able to purchase 40 whole shares ($1,000/$24.43 = 40.933).

    Keep in mind that while some online brokerages allow purchases of fractional shares, this is not an industry standard.

  3. Choose your order type.

    When you buy something from your local market, you pay the listed price (including tax if applicable). However, stocks in a stock market typically fluctuate in value, necessitating different order types to secure a transaction.

    Bid: The bid is the highest price a buyer will pay for a stock and is always lower than the ask.

    Ask: In contrast, the ask is the minimum price a seller will accept and is always higher than the bid.

    Spread: The spread is the difference between the bid and ask price. To briefly summarize, investors (you) make money off the belief that shares will rise in value. Market makers make their money by the difference between their stock acquisition price and the price they sell the stock to you.

    Limit order: A limit order is a specific price you wish to buy or sell a stock. The benefit here is full transparency – the transaction will only go through under your set price. However, the disadvantage is that there is no guarantee this price will ever materialize.

    Market order: A market order is a request to buy or sell a stock at the next available price. The advantage is a virtual guarantee that your order will go through as long as it’s placed within the trading session. On the flip side, there’s no guarantee that it will execute at the most favorable price.

    Stop-loss order: A stop-loss order is a safety valve for your portfolio. If you believe that your target stock will fall in value, you can set a specific price to exit your holdings. This way, you get something out of your investment rather than watching it plummet. However, if the stock price gaps down between sessions, you may end up selling your holdings at a far lower price than desired.

    Stop-limit order: A stop-limit order helps prevent the nasty surprises that gap-down sessions can incur on stop-loss orders. Rather than selling outright when a stock falls below a specified price, a stop-limit order will only execute at the specified price and never below it. Therefore, if a bounce-back occurs following a steep gap-down session, a stop-limit order may trigger if the recovery rally reaches your price threshold. Of course, the disadvantage is that this price may not materialize.

  4. Execute your trade. 

    Now that you know the basics of stock market transactions, it’s time to buy Nikola stock (assuming you understand the risks involved). The order type you use will largely depend on the market condition at the time and your desire to invest in NKLA.

    For example, if Nikola stock is really moving, it’s possible that shares can fly above your limit order, never to dip down to your executable price again. In this case, you may prefer a market order.

    Take care with speculative investments. If you’re on the more cautious end of the investing philosophy spectrum, you may want to opt for a limit order.

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Nikola Stock History

Following an initial spike in valuation not dissimilar to many other EV securities, Nikola stock suffered a steep drop as analysts and investors grew skeptical about the underlying company’s ability to actually produce and deliver its Badger pickup truck.

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Later, Hindenburg Research’s fraud allegations got buffered when social media users eventually picked up the slack, buying up Nikola stock in the hopes of forcing a short squeeze.

Pros to Buying Nikola Stock

The upside potential of NKLA: the “short squeeze.” Currently, the short float of Nikola stock is 36.4%, a hefty allocation of traders taking bearish bets on NKLA. These traders profit if shares fall down. Take a look at other reasons you might want to dip in:

  • Compelling product: Because of Nikola Badger’s futuristic but familiar design elements, it should appeal to buyers who are skeptical about electric vehicles.
  • Potentially undervalued: Before the fraud allegations, Nikola stock traded hands at nearly $80 at its peak. A move back to that price level would net a handsome reward for speculators today.
  • The power of the internet: Social media has now become an unignorable catalyst on Wall Street and its penchant for lifting out-of-favor stocks could help Nikola escape from the doldrums.

The reason why Nikola stock was intriguing before the fraud fiasco was its underlying product. The Nikola Badger pickup truck represents a rethink in the EV industry and features a futuristic design. It’s a vehicle to watch if it can reach the production phase.

Cons to Buying Nikola Stock

Trust plays a crucial role in whether people will participate in the stock market. On that note, check out some reasons you may want to steer clear of Nikola:

  • Fraud, fraud, fraud: Sadly, the allegations surrounding Nikola stock imply substantial confusion as to what part of the underlying business, if any, are actually viable.Not surprisingly, it’s hard to trust a company when the CEO resigned under fraud allegations. This is something to keep in mind before getting involved with Nikola stock.
  • No more low-hanging fruit: Due to the enormous success of Tesla and other EV manufacturers, the low-hanging fruit in this market is gone. You’ve got to produce the goods and that’s a huge question mark hanging over Nikola.
  • Short-squeeze limitations: While you can’t ignore social media nowadays, you also don’t want to bank on it too much. Eventually, even the most ardent bulls will have to sell shares to take home their profits.

A Hot Trade: Too Hot for You?

Prior to the fraud allegations, Nikola stock represented a very tempting offer. Because the underlying company competed on a fresh segment (electric pickup trucks) and due to its bold and universally appealing design, NKLA drew much early investor sentiment.

However, fundamentals matter and so does fraud. As academic research and common sense imply, it’s difficult to earn trust once it has been broken. Further, while the frenzy surrounding out-of-favor stocks can help lift Nikola, emotions alone have never been a reliable tailwind.

You can make profits with Nikola stock, but you should know when it’s time to hit the brakes.

Disclosure: The author of this article has a long position in NKLA.

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