In the world of share trading, there are some companies that everyone gravitates to when trying to determine how well tech stocks are doing collectively, these are known as the FAANG stocks.
These are companies that have proven to be some of the largest and most profitable stocks over the past decade or so.
FAANG stocks are a subset of the NASDAQ composite. These stocks were once considered "high-growth" tech companies, which included Facebook, Amazon, Apple Inc., Netflix and Google's Alphabet. FAANG stock prices have been on a steady rise since November 2016 and continue to perform in 2021.
In this article, we will be looking at what these stocks are, how to trade them as share CFDs and whether they are good investments.
FAANG is an acronym for the five largest companies in the technology sector of the US stock market. They are:
As well as being household names due to the nature of the services they provide, these companies will be familiar to most people simply because of how large and profitable they are. But perhaps the most important thing for us as traders and investors is that they continue to have strong potential for growth.
As of 6th June 2021, the US stock market has a market capitalisation of 46 trillion dollars. Now, let’s take a look at just how much of this is made up of FAANG stocks:
This brings the total market capitalisation of the FAANG stocks to 7.172 Trillion Dollars. To put that into perspective, that’s almost 15% of the entire US Stock Market.
There are, of course, many factors that a trader needs to consider when deciding if particular shares are going to be a good investment for their portfolio. But if we’re looking broadly at FAANG stocks, you only need to look at their track record to see that they have grown amazingly over the years; this is a group that has historically outperformed the S&P 500 index.
Quite simply, FAANG stocks are as popular as they are because they have proven to be good investments. They have continued to innovate and push the boundaries of their business model, leading to unrivalled growth over the years.
For new traders who are interested in the FAANG stocks, check out our guide on how to buy and sell shares for beginners, and learn the steps needed to open your first share CFD trade in MT4.
The thing making FAANG stocks as popular as they are today is their resilience – especially throughout the market turmoil created by the COVID pandemic. They have a strong record of growth, matched by their future growth potential.
While FAANG stocks may steal the spotlight, there are a lot of other very popular US stocks for traders to consider.
For instance, there is Tesla (TSLA) that has gone from $80 to $800+ in the space of almost two years – at 1,000% growth, that’s a level not even the FAANG stocks can compete with. Then there’s Pfizer which has seen its price shoot up by almost 100% since January 2020 due to COVID-19.
It just goes to show that when you’re looking to diversify into the stock market, there are options outside of the FAANG stocks.
To trade FAANG stocks, you can do it through a brokerage account. However, most brokerages only allow you to buy FAANG stocks, meaning you can only play the upside – in other words, you only profit when the share price goes up.
If you want to be able to trade both directions on FAANG stocks (i.e. selling when you believe it will drop in price, or buying when you believe it will rise in price), trading FAANG as share CFDs is a viable option as these allow you to go both long and short. Share CFD trading also allows you to apply leverage to your trades and when trading share CFDs with Axi you will not have to pay a single cent of commission.
Find out more about share CFDs vs share trading.
Facebook live price chart in MetaTrader 4
To be able to invest in FAANG stocks through stock indices you will need to understand their weighting in the S&P 500 and NASDAQ.
You can diversify into FAANG stocks, without buying them directly, by investing in the S&P 500 index. This is because FAANG stocks make up close to 19% of the entire S&P 500, which is a substantial amount considering that the S&P 500 is generally viewed as a good proxy on how the US economy is performing as a whole.
If you’d like a higher weightage of your investment being in FAANG stocks through an index, you can consider the NASDAQ where FAANG stocks make up close to 33% of the entire NASDAQ.
Recommended reading: How to trade indices?
Amongst the FAANG stocks, the only company that pays dividends is Apple. The others have never paid a dividend to shareholders, instead choosing to use their available capital to generate high growth through acquisitions and investing in internal businesses.
As you can see, the reason why people are so interested in investing in FAANG stocks is because of their explosive growth and potential for future profits. If you're looking to invest into companies in the US tech sector, it may be worth your while to trade share CFDs. This way, if they go up or down in value, you are able to trade and don't have any risk involved with owning an actual stock.
Start trading FAANG stocks today when you sign up for a live trading account with Axi. Go long or short on 5 of the most popular tech stocks in the world.
The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.
Having some of the largest companies in the world like Amazon, Google and Apple, make the US stock market the main market for share trading, find out how to trade these US shares here.