Investing in Gaming Stocks - Detailed Guide

January 15, 2021 09:25 UTC
Reading time: 20 minutes

The video game industry is a huge and fast-growing market that seems to have a lot of potential to grow. The new video game devices, combined with the progress of the existing ones, are paving the way for the gaming industry to new heights in terms of market value in the coming years. That is why this industry is attracting serious interest from a large number of investors. If you’re one of them, then you’re in the right place.

In this article, you are going to find out:

  • What is the gaming industry?
  • Types of video game companies offering gaming stocks
  • Why invest in gaming stocks?
  • Risks when investing in gaming stocks
  • How much money to invest in gaming stocks?
  • The best gaming stocks
  • How to invest in gaming stocks?
  • How to start trading gaming stocks?

Let's not waste valuable time. Let’s get started!

how to invest in gaming stocks

What is the gaming industry and what are gaming stocks?

A video game is an electronic game that can be played on a computer device, such as a personal computer, laptop, game console, or cell phone. Video games have come a long way since they first appeared in the 1970s. Today's video games offer realistic graphics and simulate reality to an extent that is amazing in many cases.

The gaming industry or the video game industry includes all companies that are involved in the creation, design, marketing, delivery and production of video game hardware.

Here are some key stages in the development of the gaming industry:

  • In 1971, the arcade game Computer Space was released and was followed by Atari Inc.'s first commercially successful video game, Pong. The games officially entered homes with the launch of an early game console called the Magnavox Odyssey.
  • In 1978, the video game market took on a new look with a successful game called Space Invaders, which marked the beginning of the placement of arcade gaming machines in public spaces.
  • The late ‘70s was also the beginning of personal computer games
  • In the late ‘80s, the Nintendo Gameboy console was released, which gave a new impetus to video games
  • The 1990s were marked by the use of CDs, 3D graphics, and the rapidly growing popularity of the Internet, which allowed many players to play in one game (multiplayer).
  • In the 2000s, the development of the first games for mobile phones began, and the three main types of gaming were already emerging: computer, console, and mobile.

Video games can benefit from the development of technology in a way that very few other industries can do. This makes them an extremely attractive option for investors in today's digital age.

In addition, the advent of technology such as virtual and augmented reality and increasingly powerful video cards will allow users to fully immerse themselves in games.

Types of video game companies offering gaming stocks

Although the gaming industry may seem like a relatively simple business model, there are several different types of companies involved, each with its own specifications.

Here’s a distribution of the different types of video game companies:

  • Design companies
  • Software companies
  • Hardware companies
  • Publishing and distribution companies

Each investor will choose which type of gaming stocks to invest in. However, it is recommended that all capital earmarked for investment in this industry not be directed to a single company or only one type of these companies in order to diversify the portfolio.

Why invest in gaming stocks?

The gaming industry is no longer a niche for a particular age group or consumer segment. With the advent of mobile games and improvements in the hardware used to play these games, they have become a viable form of entertainment for players of all backgrounds and ages.

With smartphones in the hands of billions of people around the world, everyone is a potential gamer. The rise of e-sports and video game streaming on platforms such as YouTube and Twitch shows that people enjoy not only playing games, but also watching and talking about them.

Video game companies that produce a compelling product can expect to gain a loyal fan base by collecting additional revenue in the form of downloadable content (DLC), promotional materials, expansion packs and sequels.

Thus, the video game industry is expected to bring companies in this sector revenue of almost $175 billion in 2020, which is about 20% more than the previous year. And that value is projected to rise to more than $200 billion by 2023, when the number of players hits a record 3.07 billion people, or about 40 per cent of the world's population:

customers of video game companies chart graph

Source: Newzoo.com, December 1, 2020

If the reasons listed above have not yet convinced you to focus on investing in gaming industry stocks, then let's see what other benefits can come from such investments:

  • Exposure in one of the fastest growing industries in the world
  • Exposure to innovation
  • Opportunities for capital gains and achieved non-financial goals
  • Opportunities for passive profitability in the form of dividends
  • Opportunities for diversification of a portfolio of assets
  • Opportunities to save or retire
  • Inflation protection
  • High liquidity, as some game stocks are among the most traded in the world

Of course, every investor can find many other reasons to make their investments in the gaming industry. Here we just listed some of the most common.

Risks when investing in gaming stocks

Like any investment, buying game stock has its risks. Here I list the main ones:

  • Sudden changes in the industry such as the disappearance/replacement of some products with the introduction of newer ones
  • Potential government regulations on the gaming industry
  • Higher volatility in stock prices compared to most other industries
  • Higher valuation of companies in this high-tech industry (higher price/profit ratio)

These risks seem quite reasonable against the background of the rapid development of the gaming industry and expectations for new products and services in the future.

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How much money to invest in gaming stocks?

You already know what the gaming industry is and why you should invest in gaming company stocks. Now is the time to look at another key issue. How much money to invest in gaming stocks?

The answer to this question depends mainly on three personal factors:

  1. Personal opportunities
  2. Personal financial goals
  3. Personal tolerance for risk

Personal opportunities can be very individual for different investors and, therefore, it’s not possible to determine an exact amount for everyone to start with.

At the same time, start identifying your financial goals. What will you need in the future? You may want to buy a house or a car, finance your child's education, plan vacations abroad, start or develop a business or a new venture, or just have enough money when you retire.

The answers to these questions will give you an idea of ​​your financial goals.

The next aspect you need to consider is your risk tolerance, or your ability to take risks. This depends on factors such as current income, savings, expenses, financial obligations (such as paying off a mortgage) and adequate financial coverage for life and health. And, last but not least, it depends on your own temperament.

You can also look at the investment horizon, or the time which your funds can be set aside without needing them. This will depend on whether you focus on short-term investments or long-term ones. Cumulative investment (a certain amount each month, for example) can make a seemingly small return look serious when it comes to longer periods of time.

Both extended deadlines and higher rates of return can give you similar results. This makes different investments interesting and suitable for different purposes.

The best gaming stocks

Investments in video gaming stocks may involve some of the largest companies in the world, while companies with significant exposure to other sectors and industries may also participate. Here is an online gaming stocks list, with some of the biggest players in the gaming industry, which operate in various segments:

Tencent Holdings

Tencent is a Chinese multimedia conglomerate that is also the world's largest video game company in terms of revenue. The company was established in 1998 with headquarters in Shenzhen, China and operates through segments such as online advertising, the social network WeChat, Fintech, cloud services and also participates in the production, investment and distribution of film and television programs and more.

The hit Tencent game League of Legends was a huge success after its release in 2009. In addition, the company is a leader in e-sports and is the creator of the extremely popular mobile game Honor of Kings.

In the following image, you see a chart of the gaming shares price of the division of Tencent Holdings - Tencent Music Entertainment, through which you can get exposure throughout the holding:

TME Daily chart

Source: Admiral Markets MetaTrader 5, #TME, Daily chart with data range from May 6, 2019, to December 1, 2020. Accessed on December 1, 2020, at 8:30 p.m. Please note that past performance does not guarantee future results.

Sony

It makes no sense to list all the industries in which this consumer electronics giant operates successfully. They range from music and video content, to electronics and software to finances and insurance.

It’s important to note that the gaming industry is one of them and the Playstation console has a legendary status in it. In addition, Sony is one of the leading manufacturers of video games in the world.

However, let us mention that the company was established in 1946 in Tokyo, Japan.

In the chart below you can see how Sony's gaming stock price has moved on the Tokyo Stock Exchange over the past almost 8 years:

6758.JP sony corp Weekly chart

Source: Admiral Markets MetaTrader 5, #6758.JP, Weekly chart with data range from January 27, 2013, to December 2, 2020. Prepared on December 2, 2020, at 07:10. Please note that past performance does not guarantee future results.

Microsoft

Microsoft Corporation develops, licenses, and maintains software, services, devices, and solutions worldwide. Its productivity and business process segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance and Skype for Business.

In addition, the company owns LinkedIn and Dynamics 365, a set of cloud-based and local business solutions for small and medium-sized businesses, large organizations and business units. Its smart cloud segment licenses SQL and Windows servers, Visual Studio, System Center and the Azure cloud platform.

Microsoft's gaming segment is often forgotten, but the fact that the company is behind one of the most popular consoles on the market, Xbox, as well as the Microsoft Games division, should not be overlooked.

Microsoft is the third one trillion-dollar company in the United States. Below is a chart of the share price of Bill Gates' company:

MSFT Weekly chart

Source: Admiral Markets, MetaTrader 5, #MSFT, Weekly chart with data range from February 3, 2013, to December 2, 2020. Accessed on December 2, 2020, at 5:05 p.m. Please note that past performance does not guarantee future results.

As you can see, Microsoft can be considered one of the best gaming stocks in the world.

Activision Blizzard

Activision Blizzard Inc., together with its subsidiaries, develops and distributes content and services on video game consoles, personal computers (PCs) and mobile devices worldwide. The company operates in three segments: Activision Publishing, Blizzard Entertainment and King Digital Entertainment. The company's key product franchises include Call of Duty, World of Warcraft, Diablo, Hearthstone, Overwatch and Candy Crush.

Activision Blizzard is the largest video game company in the United States and was established in 1979 with headquarters in Santa Monica, California.

In the following image you can find the chart of the share price of Activision Blizzard:

ATVI Weekly chart

Source: Admiral Markets, MetaTrader 5, #ATVI, Weekly chart with data range from February 3, 2013, to December 2, 2020. Accessed on December 2, 2020, at 5:05 p.m. Please note that past performance does not guarantee future results.

This is one of the best gaming stocks to keep an eye on. Let’s look at another one:

Nvidia

NVIDIA Corporation is a visual computing company operating worldwide. It works in two segments, GPU and Tegra Processor.

  • The GPU segment offers processors that include GeForce for computer games and mass computers; GeForce NOW for cloud-based games; Quadro for professional designers working in computer-aided design, video editing, special effects and other creative applications, as well as artificial intelligence.
  • The Tegra Processor segment provides processors that include SHIELD devices and services designed to use the power of the mobile cloud to revolutionize home entertainment, artificial intelligence and gaming, DRIVE AGX for self-driving vehicles and Jetson AGX for robotics and other embedded uses.
  • The company's products are used in games, professional visualization, data centre and automotive markets.

NVIDIA Corporation was founded in 1993 and is headquartered in Santa Clara, California.

Below you can find a chart of Nvidia's share price:

NVDA Weekly chart

Source: Admiral Markets, MetaTrader 5, #NVDA, Weekly chart with data range from February 3, 2013, to December 2, 2020. Accessed on December 2, 2020, at 5:05 p.m. Please note that past performance does not guarantee future results.

Of course, choosing which gaming stocks to add to your portfolio is an individual decision for each investor. Such a decision should take into account the budget, personal financial objectives and personal risk tolerance.

How to invest in gaming stocks?

In fact, investors have several opportunities to gain exposure in the gaming industry, each of which has its advantages and disadvantages.

Each investor must choose the right tools for themself, taking into account their personal capabilities, personal financial goals and risk tolerance.

Here are the 3 main opportunities to invest in gaming stocks:

  • Contracts for difference (CFDs) of gaming stocks
  • Real game shares of gaming companies
  • An Exchange Traded Fund (ETF) investing in gaming stocks

Let's give a little more detail about each of them.

CFDs on gaming stocks

A Contract for Difference (CFD) is a contract which is concluded between a trader and a broker to exchange the difference in the price of an asset. This contract is active until it’s closed by the trader, and payments under it are in cash, instead of the actual delivery of the traded asset.

In practice, Contracts for Difference provide investors with almost all the advantages of real investment in financial instruments like gaming stocks, but without actually owning them.

Let's first note the advantages of trading Contracts for Difference in gaming stocks:

  • Short sales. One of the main advantages of today's CFD trading lies in the possibility of short positions. In this way, you can potentially benefit from both rising and falling markets.
  • Use of leverage. CFDs allow you to manage a larger amount than you have in your trading account. This happens through the use of leverage.
  • Opportunity for transactions within a day. CFDs allow traders to take advantage of short-term price movements in gaming stock, index or commodity markets.
  • Easy access to global markets. Easy access to many financial instruments, such as stocks, bonds, currencies, commodities, cryptocurrencies, etc. through an intermediary of your choice.
  • In CFD trading with Admiral Markets, there are often no fees and commissions for opening and closing positions.
  • Many trading styles are available (at least for some brokers such as Admiral Markets).

Like any investment, CFDs have their drawbacks:

  • There’s no possession of the underlying asset (in this case, the gaming stock), with which there are no property rights in the case of bankruptcy of the company.
  • CFDs may be a less regulated product than real stocks.
  • The leverage effect can be a double-edged sword. This means that, in addition to increasing potential profits, this financial lever also increases potential losses.
  • Swap fees to hold the position at night.

If you’re ready to start, you can trade CFDs on the world's most popular gaming stocks now with no commission. Just click this banner below and get started!

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Real stocks

Advantages of investments and trading in real gaming stocks:

  • Real possession of the base share with all associated property rights
  • Less risk due to lack of leverage
  • No swap fees to keep the position open at night
  • More stable regulation

At the same time, the disadvantages of investment and trading in real gaming shares compared to trading in CFDs of shares are:

  • Lack of opportunity to open short positions
  • Lack of opportunity to use leverage
  • Potential for fees and commissions for purchase and sale
  • Lack of opportunities to trade in many different markets

Exchange Traded Fund for investing in gaming stocks

In general, an Exchange Traded Fund (ETF) is a basket of securities that you can buy and sell on the relevant stock exchanges through a financial intermediary (broker).

These funds can invest in many different asset classes, one of which is gaming stocks.

The benefits of investing in gaming stocks through an ETF include:

  • Lower costs because you can buy a basket of shares instead of just one
  • Automatic portfolio diversification
  • Tax efficiency (for example, actively managed mutual funds often buy and sell assets, which generates taxable capital gains, which is not the case with ETFs)

Disadvantages include:

  • In some cases, ETFs may have lower liquidity than equities
  • There may be some discrepancies with the underlying asset that follows the fund

There is no right or wrong tool to start investing in gaming stocks. You just have to choose the most suitable one for your trading and investment style.

How to start trading gaming stocks?

Once you know what the gaming industry is, why to start investing in gaming shares, how much money to spend and how to invest in gaming stocks, it's time to move on to the more interesting and practical part, namely, to make your investment in gaming stocks.

You can do this in just three steps:

  1. Open a trading account
  2. Download your trading platform.
  3. Open a New Order window and make your first deal!

For more information on how to open a stock trading account with Admiral Markets, watch the following short video:

Let's give an example of how to buy/sell CFDs on gaming stocks using Activision Blizzard.

How to buy shares

  1. Log in to your account with Admiral Markets (MT4/MT5/WebTrader/Mobile app)
  2. Go to Market Condition
  3. Look for shares in Activision Blizzard
  4. Right-click on the shares and then select "Chart Window"
  5. Once the graphic appears, click on the "New Order" button (in the Toolbar below the menu)
  6. Select the number of lots in the Volume field, as well as the stop loss and take profit levels, if you want to place these
  7. Click on the blue "Buy on Market" button

When you buy (a long position) in Activision Blizzard gaming stock, you expect it to rise so that you can make a potential profit from your deal.

How to sell shares

  1. Log in to your account with Admiral Markets (MT4/MT5/WebTrader/Mobile application)
  2. Go to Market Condition
  3. Look for shares in Activision Blizzard
  4. Right-click on the shares and then select "Chart Window"
  5. Once the graphic appears, click on the "New Order" button (in the Toolbar below the menu)
  6. Select the number of lots in the Volume field, as well as the stop loss and take profit levels if you want to place these
  7. Click on the red "Market Sale" button

When you sell (short position) in Activision Blizzard gaming stock you expect it to fall in price so you can make a potential profit from your deal.

About Admiral Markets

We are a broker with a global presence and are authorized and regulated by financial regulators such as the Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySEC) and the Australian Securities and Investments Commission (ASIC). We provide access to over 8,000 financial trading instruments such as Forex & CFDs on stocks, indices, bonds, commodities, ETFs and cryptocurrencies, as well as investment opportunities in real stocks and ETFs.

With Admiral Markets you can use the most innovative trading platforms such as MetaTrader 4 and MetaTrader 5 for free, as well as the exclusive MetaTrader Supreme Edition plug-in.

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