3 Strategies to Trade the USFANG

Technological stocks, such as Apple, Facebook or Netflix, have been not only among the biggest winners on Wall Street, but have also transformed the way we live. As their valuations soared, sceptics have argued that another market bubble might be in the making. As a result, the FANG index has been created and while its name represents Facebook, Amazon, Netflix and Google, the index actually represents 10 tech stocks in equal proportions. In this article, we present three different ways of using the USFANG CFD that is based on the NYSE FANG+ index.

Valuation in US Dollars; your return may increase or decrease as a result of currency fluctuations. Please be aware that the presented data refers to the past performance data, and as such is not a reliable indicator of future performance.

Sources: Bloomberg, xStation

Strategy 1 - portfolio of stocks

Index CFDs have two major features: leverage and scale. If you want to invest in 10 technological stocks (Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Netflix, NVIDIA, Tesla and Twitter), you will need quite a lot of capital. With USFANG CFDs, not only do you have all of them included in one index, but you will only need a 10% deposit to take a position. Scaling allows you to take as large a position as you like. One lot represents point value times $50, so if the index is at 2600 points, this would work out at $130,000. However, if you want your position to be $50,000, you can open a position of 0.38 lots. To do that, you only need to have a deposit of $4940. Therefore the USFANG is a great way to invest in tech stocks using just one instrument.

The important thing to remember about leverage, however, is that while it can magnify your profits, your losses are also magnified in the same way. So if prices move against you, you may be closed out of your position by a margin call or have to top up your funds to keep it open. This is why it’s important to understand how to manage your risk.

Strategy 2 - Outright short

While you can buy 10 stocks separately, you’ll only profit if all of their prices go up at the same time. So, what if, for example, you think that technological stocks are overvalued? Taking a short position in USFANG CFD is a great way to trade such a view. Your position will earn a profit for as long as USFANG declines. Again, you are taking advantage of leverage and scale just as with Strategy 1. Please remember that losses will also be magnified and you should manage your risk accordingly.

Despite a major correction in 2018, the NYSE FANG+ returned 23.3% annually between September 2014 and end of February 2019. USFANG is a CFD based on that index that is available on xStation. Valuation in US Dollars; your return may increase or decrease as a result of currency fluctuations. Please be aware that the presented data refers to the past performance data, and as such is not a reliable indicator of future performance. Source: xStation

Strategy 3 - speculative hedge

This strategy can be used for traders that already have a portfolio of stocks. If you have a portfolio of stocks that is worth $20,000, for example, and you like the stocks you have but you also think technological stocks are overvalued, you can consider a short position in USFANG with CFDs (0.15 lots would represent $19,500 at the index value of 2600). Such a trade simply assumes that your stocks will perform better than stocks included in NYSE FANG+.

Data sources: Bloomberg, xStation, XTB Research