Trading FAANG: how to buy and sell FAANG companies
Rebecca Cattlin May 11, 2022 3:45 AM
FAANG stocks are considered the ‘top tier’ tech firms – Facebook, Amazon, Apple, Netflix and Google are some of the most popular, and best performing, stocks on the market. Discover what you need to know about trading FAANG stocks, including how to buy and short the tech giants.
What is FAANG?
FAANG is the acronym for five of the largest US technology companies: Facebook (now Meta), Amazon, Apple, Netflix and Google (now Alphabet).
The term was first used by Mad Money host Jim Cramer in 2013 while talking about how each of the companies dominates its market. At the time, he wasn’t referring to Apple – which was added later in 2017 – so the original acronym was just FANG.
FAANG vs FAAMG
FAAMG includes most of the same stocks, but replaces Netflix with Microsoft. FAAMG is considered a better way to get exposure to top US stocks, given Microsoft has got a better track record of growth and stability than Netflix.
The FAANG companies are considered five of the most important companies in the world. Not only are their services used daily by consumers, but their shares are among the most traded – each holding blue-chip status.
Meta owns three of the top five most downloaded apps: Instagram, Facebook and WhatsApp. The company changed its name from Facebook to Meta Platforms – or Meta – in October 2021 to better reflect its focus on the metaverse – a virtual world that connects users and services.
Facebook makes most of its revenue through advertising on its platform, using sponsored ads tailored to users’ interests and consumer habits.
Amazon dominates the online shopping industry, with a 50% share of the US retail e-commerce sector as of 2021. Since the introduction of Amazon Prime, consumer spending has increased and now over 62% of US Amazon customers pay the subscription fee to be Prime members.
Although most of Amazon’s revenue comes from its e-commerce arm, it also has a successful cloud computing segment and advertising business. In fact, Amazon is made up of over 128 different businesses.
Apple was the last entrant to the FAANG acronym but is the largest company in the world by market capitalisation. As of May 2022, it was worth $2.545 billion, compared to the next FAANG stock which is Alphabet at a ‘mere’ $1.523 trillion.
Apple is the leading personal electronic device manufacturer, thanks to its iPhone, iPad and Mac lines, but it also makes money through subscription services such as iCloud data, Apple Music and Apple TV.
Netflix was the original streaming service that captivated consumers and ignited the battle for direct-to-consumer content. The company started off as a DVD-by-mail service and grew to become the largest streamer in the US – it still holds a 27% market share, despite the entrances of Amazon Prime Video, Apple TV and Disney+.
Alphabet is the parent company of the world’s largest search engine, Google – which has become synonymous with internet search itself – as well as YouTube, Nest and FitBit.
Discover the other companies Google owns.
Most of Alphabet’s revenue comes from its advertising and cloud businesses. Google made more than $256 billion from ads in 2021, and accounts for approximately 26.4% of the digital ad market in the US – putting it still marginally ahead of Meta. Meanwhile, Google’s Cloud Platform has a 4.6% market share of the hosting industry, making it one of the top providers.
FAANG market capitalisations
The FAANG market capitalisations place all five companies into the blue-chip stock category – as they all have a value of over $10 billion. Facebook, Apple, Alphabet and Amazon have even reached market capitalisations of over a trillion dollars. As of May 2022, the FAANG market capitalisations are:
- Apple - $2.545 Trillion
- Alphabet (Google) - $1.523 trillion
- Amazon - $1.167 trillion
- Meta (Facebook) - $582.57 billion
- Netflix - $80.40 billion
Only Netflix isn’t part of the top 10 most valuable companies.
FAANG P/E ratios
The P/E ratio is a metric that tells traders and investors whether a stock is over or undervalued by looking at how far above earnings the company’s shares are trading. For example, Amazon’s P/E ratio of 55.41 means its stock price is currently 55.41 times the earnings that an investor receives from the shares.
As of May 2022, the FAANG P/E ratios are:
- Facebook – 15.41
- Amazon – 55.41
- Apple – 25.53
- Netflix – 16.42
- Google – 20.92
On its own, the P/E ratio tells us very little, so you compare the P/E ratio of a company to others in the same industry. Although they’re known for dominating their respective markets, FAANG stocks do overlap in some services, so comparing P/E ratios can provide some insight. For example, Apple, Amazon and Netflix all have streaming services, while Google and Facebook both own social media platforms, and ad services
How to buy FAANG stocks
To buy FAANG stocks individually, you’ll need access to a broker or derivatives provider.
Investing in FAANG stocks means you’ll be taking ownership of the company shares; in the hope they’ll rise in value and you can sell them on for profit. If the company pays dividends, you’ll receive the payment and may be eligible for some voting rights.
Trading shares via derivatives means you’ll be speculating on the underlying price of FAANG stocks without taking ownership of the shares. Derivatives are leveraged products, which means you can buy FAANG stocks for just a percentage of the initial cost – however while leverage can magnify profits, it can also magnify risks.
Take your position in just a few quick steps:
- Open a FOREX.com account, or log in if you’re already a customer
- Search for the company you want to trade in our award-winning platform
- Choose to ‘buy’ the FAANG stock, set your position size, and your stop and limit levels
- Place the trade
How to short FAANG stocks
When you short FAANG stocks, you’re selling them with the expectation that their price will fall. You can take a short position easily with derivatives – instead of opting to ‘buy’ the stock to open a position, you just ‘sell’ it instead.
Instead of your profit being determined by how far the price rises, your profit is based on how far the price falls. Instead of losing money if the price falls, you’d lose money if it rises.
Learn how to short a stock.
You can go short on FAANG stocks in just a few steps:
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