How to Trade Facebook Shares: Analysis from Joshua Raymond [City Index]

LONDON, May 17, 2012 /PRNewswire/ --

The following spread betting guide aims to help you create a solid Facebook trading strategy alongside City Index's Chief Market Analyst, Joshua Raymond.

Facebook to Debut on the Nasdaq

Tomorrow [May 18] we will see the debut of Facebook shares on the Nasdaq index.

On Monday [May 14], the social networking site raised the price range for its initial public offering (IPO) to $34-$38 - from $28-$35 - showing signs of significant investor appetite.

This initially valued the company between $77-$96 billion. However, following the raised IPO on Monday, it is now valued at $93 billion to $104 billion.

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Analysis by Joshua Raymond, Chief Market Analyst

Below, Joshua Raymond, Chief Market Analyst at City Index, offers his professional opinion on what to expect from not only tomorrow's debut, but today's IPO outcome.

"Whilst Facebook's IPO looks set to be the most eagerly watched public offering for some time, doubts still remain concerning the long term stability of the current target price range of $34 to $38 - which could give it a valuation of more than $100bn (see above).

IPOs are more often than not a volatile procedure and this one could be even more so given the celebrity status that Facebook currently enjoys.

Make no mistake; Facebook is a powerful company with a user list of over 900m, of which 80% reside outside of the US.

Concerns remain, however, about whether users are happy to click on advertisements in their social down time in the same way as standard web browsing advertisement click through rates.

A recent study from Worldstream showed that ads on Facebook saw a click through rate of just 0.05% compared to 0.4% for standard web display adverts.

Moreover the timing of the IPO is not ideal as it comes at a time of huge market uncertainty and slowing global growth where businesses are cutting costs and consumers are hoarding cash, which could make the first quarter performance of Facebook's share price every bit as important as the first tradable day itself."

How to Spread Bet Facebook Shares

When the Facebook shares launch tomorrow, in the UK you will be able to take a position on their future price movement with spread betting provider City Index.

To take a position - you simply need to choose whether or not you expect the Facebook share price to rise or fall.

If you expect them to rise, you will go long and buy - alternatively if you expect them to fall, you can go short and sell.

For every point the market moves in your favour, you will net a tax-free* profit.

*At present in the UK, spread betting is exempt from both stamp duty and capital gains tax. However, tax laws are subject to change.

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About City Index

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFD trading and, in the UK, financial spread betting.

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SOURCE City Index