A Guide to Trading on NASDAQ

A Guide to Trading on NASDAQ

In terms of market capitalisation, the New York Stock Exchange (NYSE) is the largest stock exchange – followed by the National Association of Securities Dealers Automated Quotations (NASDAQ). The National Association of Securities Dealers (NASD) established this exchange platform in 1971 in order to provide investors with a computerised way of trading securities on a system that was speedy, credible and also transparent.

The platform is currently owned by NASDAQ Inc. – owners of NASDAQ Baltic and NASDAQ Nordic stock exchange market network. This is after a number of sales between 2000 and 2001 made the NASD to divest itself of the platform. Therefore, the NASDAQ Inc. been running the NASDAQ stock exchange platform, and since 2002 listed it’s own stocks on it using the symbol NDAQ.

Between 4 am and 9:30 am, the NASDAQ stock exchange market holds its pre-market sessions; while from that time till 4 pm, the regular trading session holds. There’s also the post-market session which commences by 4 pm and ends by 8 pm. The United States technology stocks is represented by  NASDAQ as a benchmark index. Therefore, you find several investors from different parts of the world buying and selling securities or stocks through this electronic market.

NASDAQ refers to both the NASDAQ composite and the stock exchange marketplace. Major players like Apple, Intel, Amazon, Google and others in the technology and biotech industry are amongst the over 3,000 stocks listed on this electronic market platform. However, if you’re a potential investor or you have already invested in it, here are several guides to trading on NASDAQ.

Diversification

When you are putting a portfolio together, you need to diversify in order to manage the risks involved. For example, if you invest all the money you have in one particular stock and something goes wrong that makes its value drop with about 30%, it automatically means that you total account value will also drop by 30%. But this risk is a lot less when you invest in a wide range of stocks.

Market Capitalization

Popularly known as Market Cap, Market Capitalisation is majorly about the magnanimity of the firm or organization whose stock is being issued. To calculate the size of the particular company, the price of each share they issue is multiplied by the number of shares they have in circulation. The stocks are usually categorised into mega caps and micro caps or Large caps, mid caps and small caps. Large caps are a select 1,200 global stocks that have fully complied with corporate governance standards, financial requirements set by the NASDAQ and the strict liquidation guidelines. Mid caps consist of 1,450 global stocks; while small caps are basically companies on the smallest level.

 Generally, you are likely to get better Return on Investment (ROI) when you invest in stocks issued by smaller companies. Although some experts might say it’s much riskier, but even some of the biggest tech companies listed in the NASDAQ stock exchange like GOOG (the symbol used by Google) and AAPL (the symbol used by Apple) were once smaller companies. But over time they offered prospects of better ROI, and investors who got in early on companies like that are having the best timea of their lives. In as much as smaller companies might be more prone to the effects of economic downturns, they are likely to boost your account in the long run.

However, you can mitigate the vulnerability of your portfolio by simply investing in both large and small companies, other than just small caps. This is because most big companies have limited possibilities of growing more as compared to smaller ones, and you would be happier when small caps receive a boost and your account will further enjoy the good times.

Industry and Sector

The fortunes of companies in all the different industries and sectors of the economy tends to change whenever the economy of a particular region or country expands or contracts – as the case may be. For instance, stocks from computer chip and memory companies performed a lot better than companies in other sectors in 2016 –  while retail stocks didn’t do so well. This was after these same stocks from computer chip companies declined for about 2 years. This goes to show that the unpredictability of a company’s stock value to go up (or not) is not determined by what sector or industry it’s in.

This is also why it’s important to manage and limit the risk involved in putting together your portfolio by diversifying while investing. There are hardly any accurate projections that a particular company or industry will suffer or benefit from a paradigm shift in the purchasing and consuming habits of customers, changes in trends, or any advancements in technology (which is inevitable). This is because investments are risks and what might seem like the right stock to put your money on might end up losing its value before you know it. In the early 2000’s for example, real estate was believed to be the best bet for investors looking for great ROI. But they found out that no industry is totally predictable when they lost investments instead – between the years 2006 and 2007.

Therefore, when diversifying your portfolio, it’s best not just to invest in several companies but also different sectors and industries – from healthcare, defence, energy and utilities to manufacturing, technology and lots more.

Geographical Locations

When investing in the NASDAQ, you need to understand that NASDAQ operates not just in the UK or the US alone. In as much as they are really large economies, but you also need to diversify beyond a particular geographical location or region if you wish to make good ROI. Keep in mind that as a countries economy grows on expands, the stock market performance does too. From the introduction about NASDAQ stated earlier, you can simply check out how companies in the NASDAQ Baltic or NASDAQ Nordic stock exchange markets have performed – in order to make an informed decision on where to invest.

However, geographical diversification has its own risks and benefits – as regards market cap diversification. That’s why even researching before purchasing any stocks from an international market could have both an increase in ROI and some risks. Better still, you can just track an international index by going through an ETF like the International Ex-US Fund (VEU) – if you wish to manage your account by yourself.

This guide will help you make the right decision on how to trade in the NASDAQ. Good luck!

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