August 19th 2021 Blog

How to Buy GameStop (GME) Stock?

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GameStop is a Texas-based merchandise retailer of console and gaming which has expanded into territories such as Canada, Europe, New Zealand and Europe. With more than 5000 physical stores alongside an online retail space, the company experienced its best years within 2004 and 2016. It continued to expand operations across Europe by continuing to acquire competitors across the continent such as its $1.44 billion acquisition of video game retailer EB Games. Additionally, it is a Fortune 500 company, ranked 521st.

However, the growth stalled near the end of 2016 till just recently when GameStop started competing with the likes of Steam and other online gaming retailers. Users of various social media networks orchestrated a short squeeze on GameStop’s stock in 2021 which received widespread attention due to its share price volatility. There have been investors who have scored big with GME shares and some investors are still hoping to get a slice of the profits. . However, a lot of them might not know the correct way to go about it.

This article is thus aimed at providing instructions on how to buy GameStop (ME) stock.

Steps to Follow to Buy GME Stock

For first time investors interested in GME stock, the following steps will help them make their first purchase of GME stock.

1. Start by selecting a brokerage

The first step to investing with any company is to find a broker. It doesn’t matter if you’re here to hold GME stock for a long time or just hold them for day trading. For the uninitiated, a broker refers to a financial services provider which purchases and sells shares of a company’s stock on a trader’s behalf. They charge a commission or annual fee for their services. Thanks to globalisation there is currently a myriad of online and physical brokerages offering accounts and trading platforms.

Since GameStop is a United States stock, any broker based out of the country will allow you to access it. Additionally, there are a number of online brokerages which offer access to GameStop stock to traders around the world. You would want to look at certain factors before you select a broker to trade with such as:-

  • The quality of the platform in regards to security and transparency

  • Any hidden fees that the broker charges and fees in general for trading

  • Access to foreign markets and cryptocurrencies in addition to stocks

  • Regulated by an international regulatory body.

2. Deciding the number of shares you want to purchase

After you have opened and funded your trading account, the next step is to decide how many shares of GME you want to purchase. This is dictated by two factors – the funds you’re capable of investing and the current price of GME stock. Then proceed to monitor and track the changing price of GME shares, which will help you, decide whether it’s the right time to invest in them.

3. Selection of order type

The order type provides brokers information on the exact time you would like to execute your order and the price you would want to pay for each GME share. If you choose the right type of order, you have more control over your trade execution. Before we proceed with the type of orders available, let's take a look at certain terminology you will encounter while placing your order.

  • Spread: The difference between the bid and ask price is referred to as spread which differs from stock to stock. For example, major stocks on the market usually have low spreads that have no effect on your trading. On the other hand, shares going under $5 as well as ones with low trading volume have wider spreads.

  • Bid price: This is the highest price that a buyer will be willing to pay for any share. Having information on what the bid price is and how it's changing can ensure that you’re not paying more for shares.

  • Ask price: This is the lowest price that a seller is willing to pay for any share.

Now that you’re familiar with the above phrases, let us now examine the different order types available to you.

I. Market Order

With a market order, you’ll be instructing the broker to buy or sell a stock or security immediately. Although it guarantees the execution of the order, it does not guarantee its execution price. When placing a market order, the broker will not ask you to specify a price at which the order will be executed. It will simply fill the order as soon as possible, meaning you have less control.

II. Limit Orders

With limit orders, you can tell your broker that you would like to buy a share if certain price specifications are met. For example, while buying GME shares, a limit order will tell the broker to buy them at a maximum price of $195 per share (say). The broker will execute the order automatically once GME falls below the $195 mark. The broker will halt the process of GME shares rise above $195. This provides traders with more control over the price per share, helping them to stay within a budget.

III. Stop-Loss Orders

With a stop-loss order, you essentially dictate to your broker that you intend on liquidating your investment if the security or stock price falls below a certain level. In this case, let us take an example. Suppose you want to buy 10 GME shares at an average of $200 each. If you set a stop-loss order at $196, your broker will automatically sell the shares held by you when GME reaches $196 per share. This type of order helps you to protect your positions from unnecessary losses caused when your investments reach the bottom price threshold.

IV. Stop-limit Orders

A stop-limit order is a combination of a stop-loss order and a limit order. When placing a stop-limit order, your broker will ask you for prices you want to set for the upper limit and the lower stop. In this case, you might set an upper limit price of $200 and a stop price of $190. So in case, GME rises above $195, the broker will convert your stop-limit order to a limit order. It will then fill your order as long as GME can be purchased for $200 each or less. The broker will stop immediately when the price rises above $200. This type of order gives you more control over the price your order is getting filled at.

4. Finally, execute your trade

After completing the order sheet, proceed with submitting it to your broker who will then execute your trade following instructions. The time taken will depend on several factors ranging from the type of order, the current GME price at the time and the overall market conditions. Brokers normally inform their traders once their order is filled via push notification or email. You may be required to place an order again the next day if the broker does not fill it in accordance with your specifications.

Advantages of Picking up GME Stock

The Covid-19 pandemic saw an influx of stay-at-home orders which has increased investing interests in video game stock. However, few analysts could have predicted the way GameStop dwarfed everyone’s expectations. GME shares surged over 680% following a war of words between users of Reddit’s Wallstreetbets forum and short sellers. Even Tesla CEO Elon Musk noticed the incredible surge and tweeted about it.

Video game retailers are best positioned as the Covid-19 pandemic continues. Demand and sales for video games are climbing steadily despite declining demand towards physical video games. GameStop’s new focus on online platforms and change in management, along with new marketing towards competitive gaming and retro gaming all will certainly help the company in the long run. This will make GME shares one of the stable long-term investments that most long-term investors would want to add to portfolios.

Disadvantages of Buying GME Stock

One of the worrying signs regarding GameStop is its inflated growth. Multiple individuals across social media networks and trading forums made a collaborative effort to purchase the stock en masse from short sellers. This attracted mainstream media attention which has resulted in a surge in its price.

GameStop’s earnings reports revealed that it had missed its earnings estimates. But this did not seem to affect GME prices which doubled. This is what has led the stock to be labelled as a meme stock bubble. There is a high probability that GME shares will crash down quickly catching investors off –guard, once the initial hype wears off.

Final Thoughts

Your work isn’t finished after you’ve bought your first GME share. It is key for every investor to monitor their holdings. This involves following your own strategy to the word and not deviating from it. Investing in one stock is always risky compared to diversifying your portfolio. If you’re into GME stock for the long term you might want to be up to date with the company’s news and annual meetings.