If you want to learn how to spread bet the NASDAQ 100 effectively, you need to know a little of its history. The NASDAQ is the high-tech index of the United States, with many Silicon Valley type companies such as chip manufacturers, biotechnology, aerospace, and associated electronics. It’s also called the US Tech 100 by some spread betting companies. It was started in 1982, and is a price weighted index of 100 technology companies.
The NASDAQ stock exchange started in 1971, and it was the first ever electronic stock exchange. This means that rather than having a trading floor, it was a simple computer bulletin board system with no physical stock market building. Back in those days it went by the full name of National Association of Securities Dealers Automated Quotation system, but in time the use of NASDAQ as an acronym was dropped, and that is now the proper name in and of itself.
As a technology index, it was particularly hard hit by the technology stock crash at the turn-of-the-century, and has some times when it is affected by events that do not impact some other indices. Here’s a recent weekly chart of the US Tech 100 index: –
In common with other US indices, it demonstrates a lot of volatility, which is either a good thing or a bad thing depending how open you are to risk. The US economy is a driver of and driven by the world economic situation, and therefore major events from around the globe are reflected in the market indices.
That said, there are specific pointers which you should watch if you want to spread bet the NASDAQ. The market for high-tech tends to be driven by the latest toys (for both children and adults), and regular Apple Computer announcements of upgrades to its offerings, for example, certainly leave their mark on the prices. In this way, the NASDAQ may be more prone to move as a result of fashions and fads.
There is a technical difference in the way the NASDAQ market works compared to, for example, the New York Stock Exchange. On the physical exchange, there is generally one person or “specialist” who is responsible for the buying and selling of stocks of a particular company. With an electronic stock exchange such as the NASDAQ, there may be several “market makers” who will buy or sell stocks in different companies. They provide liquidity to the stocks, and can also “make the market” by moving the price a little from that offered by other market makers.
As the NASDAQ is electronically based, the fact that there are several people setting the price of the shares is transparent to the individual trader. When you are spread betting, you are further removed by one step, as your spread betting company will be naming their spread. But the NASDAQ is heavily traded, so you cannot reasonably expect there to be any arbitrage opportunities between different spread betting providers. Any differences that occur will rapidly be corrected.
Spread Betting the NASDAQ
NASDAQ is the US stock index that generally has the high tech stocks listed, such as Apple, Amazon and Yahoo. It is sometimes called the US Tech 100, which is its name on the website from IG Index, where it is currently quoted at 2132.3 – 2134.3 for the rolling daily bet. As you can see, this is a tight spread of just a couple of points, and that’s because the NASDAQ is popular and heavily traded.
It is a volatile index, which means there is a good opportunity for profit. You might, for example, think that the index is going to go up and be prepared to bet £25 per point in that direction, “buying” the spread bet at 2134.3. That’s quite a large bet for this index, unless you are a “high roller”.
The index duly rises in value, and at a price of 2174.1 – 2176.1 you decide to take your profit. You can work out how much you made like this: –
You close your bet by “selling” at 2174.1.
That means the number of points your bet made is 2174.1-2134.3.
You made a total of 39.8 points with a stake of £25 per point.
Therefore your total winnings are £995.
Of course, you must be prepared for the times when the bet does not go your way, and you must close the bet quickly, accepting your loss before it gets too great. Say the index dropped to 2115.6 – 2117.6, and you decide to exit your bet to cut your losses.
In this case you close the bet at 2115.6, for a points loss of 18.7.
At £25 per point, you are down £467.50.
As an alternative, you can take out a NASDAQ spread bet on a futures basis, and IG Index is quoting the US Tech 100 for December at 2125 – 2129. This shows there is a slight bias towards the index going down in coming months. Suppose you think it is going up, you can open a spread bet for £3 per point that it will go above 2129. After a few weeks, the quote has risen to 2153 – 2157, and you decide to take your profit as the index appears to have peaked.
You close your bet at the lower of the two figures, 2153, and figure out your gain. The value of the index rose from 2129 to 2153, an increase of 24 points.
You bet a modest £3 per point, so multiplying this out you gain £72.
Indexes can go up and down all the time, so say you thought it was going higher and waited longer. Unfortunately, on some bad news about the US economy the NASDAQ index plummeted, so you rushed to close your bet, and got out when the quotation was 2106 – 2110.
The bet closed at 2106, so taking this off your opening price of 2129 you have lost 23 points.
The total amount you have lost is £69, but you have gained the wisdom to know that you must watch the international markets carefully when you have an open bet.