What is NASDAQ and should you be trading Nasdaq-listed shares?

What is Nasdaq?

Nasdaq is indispensable to investors wishing to participate in the tech boom…

Nasdaq, acronym National Association of Securities Dealers Automatic Quotations, is one of the largest stock exchanges in the world. Born in 1971, Nasdaq is the default exchange for any technology, or fast-growing, company. Its popularity rose because it was the first exchange to trade stocks electronically. It was a quantum leap in share trading.

To promote itself and beat its competitor, the New York Stock Exchange, Nasdaq charged lower listing fees. Smaller players who would like to list at an earlier stage became Nasdaq’s niche.  Gradually, Nasdaq attracted plenty of growth companies via Initial Public Offerings (IPO). Apple Inc (AAPL) listed there in 1980; Microsoft (MSFT) in 1986. In total, Nasdaq currently has about 3,400 listing in its US markets.

Why is Nasdaq Important? 

One reason: Technology stocks. Nasdaq-listed tech companies are among the largest in the world. They are biggest winners in the current bull market (2009-current). For example, Apple and Amazon (AMZN) both reached a $1 trillion in market capitalisation last year; recently Microsoft joined this exclusive ‘1T’ club. To invest in long-term growth stocks, you will have to look at Nasdaq-listed stocks. From the UK perspective, the growing dominance of US tech firms in the country should propel investors into these shares.

Apart from tech stocks, biotech firms are also worth looking at on the Nasdaq platform. Amgen (AMGN), Gilead Sciences (GILD) and Celgene (CELG) are just some of the biotech heavyweights listed on Nasdaq.

Apart from US firms, some foreign tech stocks also choose Nasdaq as their destination. Chinese tech firms like JD.com (JD), Baidu (BIDU), Netease (NTES) and PingDuoduo (PDD) are all listed there. You can gain exposure to the fast-growing China tech market via some of these stocks.

Not only that, tech stocks have some of the deepest liquidity globally. The large-cap tech stocks below are among the most traded stocks in the world (see below).

 

Figure – Most active stocks in the Nasdaq (source)

How to Gain Exposure to Nasdaq Listings?

The first port of call is via direct stock purchases. But which stocks to buy? Fundamental analysis is one way to pick these fast-growing stocks. The other is via technical analysis. GoodMoneyGuide has an excellent series of TA articles to guide readers on this method. For foreign investors, one thing to watch for is the Dollar exchange rate.

You can trade the NASDAQ and NASDAQ listed stocks through these brokers or compare broker for trading NASDAQ here.

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Alternatively, Exchange-Traded Fund offers another channel to ride the tech boom (read more about ETF here). Personally, I think this is a better way because it offers diversification instantly. In fact, many investors prefer trading ETFs to stocks because of their simplicity and liquidity. You may find is surprisingly that the most actively traded counter on Nasdaq is not a stock but PowerShares QQQ (QQQ).

This ETF tracks the Nasdaq 100 Index (information), which tracks the top 100 Nasdaq-listed shares. Its performance since 2009 is excellent (see below).

For UK-based investors, some investment trusts also invest heavily in the US. One example is the Scottish Mortgage IT (SMT). A cursory look at its portfolio holdings reveals that more than half of SMT’s portfolio is US focused, with Amazon occupying nearly 10% of the fund. Not surprisingly, SMT’s long-term performance was exceedingly superb (see below).

See UK brokers that offer US ETFs here

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