- Would you like to invest in the NASDAQ, the US exchange which lists many of the world’s most exciting, growth-oriented high-tech companies?
- Learn how to invest in NASDAQ ETFs, index funds, and shares.
- Compare NASDAQ online brokers and set up your first order.
- Get the pros and cons of investing in NASDAQ.
Stock market investors resident in Canada are not limited to investing in companies listed on the Toronto Stock Exchange (TSX). There are many online brokers offering them the opportunity to invest in companies listed on other major global exchanges, and one of the most popular destinations for Canadian overseas investment is America’s National Association of Securities Dealers Automated Quotations, better known as the NASDAQ.
The NASDAQ and NYSE (New York Stock Exchange) are the two largest stock exchanges in the world. The NYSE has the larger market capitalization, but the NASDAQ is recognized as the primary exchange for technology stocks such as Alphabet (the parent company of Google), Apple, Amazon, Meta Platforms (Facebook), Netflix, Nvidia, and Tesla.
Before you launch into investing in the NASDAQ, you need to know which types of investment and which broking platforms are available, the general procedure to follow and the pros and cons to be aware of.
This is your complete guide to investing in the NASDAQ from Canada.
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What can you invest in?
Ways to invest in the NASDAQ
There are a number of options for investing in the NASDAQ: Exchange Traded Funds (ETFs), index funds, and buying shares in individual companies.
Exchange Traded Funds
An Exchange Traded Fund (ETF) is an investment made up of a basket of securities, such as shares or fixed-interest bonds. In its composition, it aims to directly match or track the components of a particular industry, commodity, or financial market index such as the FTSE 100, S&P 500, Dow Jones Industrial Average, or one of several NASDAQ indexes.
A NASDAQ ETF might closely track a NASDAQ index (see ‘Index funds’ below) or be composed of a managed spread of companies listed on the NASDAQ.
Examples of NASDAQ index-tracking ETFs are Invesco QQQ Trust (NASDAQ: QQQ), Invesco NASDAQ 100 ETF (NASDAQ: QQQM), both of which invest significantly in Apple, Microsoft, and Amazon. NASDAQ sector-tracking ETFs include First trust NASDAQ Bank ETF (NASDAQ: FTXO) and ProShares Ultra NASDAQ Cybersecurity ETF (NASDAQ: UCYB), but these are only a few of the many that are available.
ETFs can be traded on a stock exchange in the same way as shares, and their unit price can fluctuate in real time during the trading day.
Investing in an ETF is a way of spreading investment risk through diversification, rather than investing in one company’s shares, or the shares of a small number of companies.
An index fund can be a type of ETF, or a mutual fund. In both cases, a particular market index is tracked, rather than industry or commodity.
The main NASDAQ indices are:
- NASDAQ-100. Includes the 100 largest, most actively traded US companies listed on the exchange, excluding companies in the finance industry.
- NASDAQ Composite Index. An index of more than 3,700 stocks listed on the exchange, weighted by market capitcapitalizationalisation.
You can’t invest directly in an index, but you can buy units in a NASDAQ index-tracking ETF or mutual fund. Index funds are considered to be most suited to long-term investors since their aim is to mimic the performance of a market rather than outperform it.
The QQQ and QQQM index-tracking ETFs have been mentioned above. But another way to trade in an index fund is via a mutual fund such as the USAA NASDAQ-100 Index Fund (MUTF: USNQX) or the Fidelity NASDAQ Composite Index Fund (MUTF: NCMX).
Mutual index funds are a more actively managed form of investment than ETFs and tend to have higher fees. They cannot be traded during the day, but only at the end of the day when the price has been set. Not all online brokers offer trading in mutual funds.
If you prefer, you can buy shares in individual NASDAQ-listed companies, such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Tesla (TSLA), Nvidia (NVDA), Alphabet (GOOG), Netflix (NFLX), and Meta Platforms (FB), and thousands more.
Buying shares in companies you have personally selected can be a much riskier form of investment than spreading your holdings via an ETF or mutual fund, since your fortunes are bound up in the success or failure of one company, or at best just a few.
Successful investing in specific companies, especially in the short term, usually requires significant market knowledge on the part of the investor, or a high degree of trust in advice received from a broker or other share trading expert.
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Where to invest in the NASDAQ
Looking for Canada's best stock trading platform? Compare options with Finty.
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How to invest in the NASDAQ
Step 1: Choose a broker
The most important feature of your chosen broker has to be that they offer trading in US securities and that the NASDAQ, rather than just the NYSE, is one of the available exchanges.
When comparing options, check what commission and foreign exchange fees the broker charges, as well as tradable instruments (including mutual fund investment if that is the way you decide to go), and whether they allow fractional share investment (since many NASDAQ-listed companies have very high prices for a single share).
Many brokers offer commission-free trades on ETFs.
Step 2: Decide how much to invest
Share prices can go up and down, so you should only ever invest what you can afford to lose.
Avoid being tempted into recklessness by the fear of missing out. You can always buy shares in the future when you have the funds to do so.
Step 3: Transfer funds to your account
You can usually add funds to your trading account with a bank transfer or debit card. Although less common, some brokers will also accept credit cards and PayPal, and may charge you a higher fee for the privilege. You may be required to set up a USD trading account that is separate from your pounds sterling account.
The length of time it takes for funds to clear before you can start trading depends on the method used. Note that your broker may require a minimum deposit amount.
Step 4: Choose between shares, ETFs and index funds (or opt for a combination)
ETFs and index funds are usually diversified across multiple companies, and so they typically experience lower price volatility than individual company shares and can be better for long-term investment.
- Short-term investors hoping for rapid capital gains (but also prepared for losses) may prefer to buy shares.
- ETFs can often be traded commission-free.
- Mutual index funds can have high management fees attached.
Step 5: Configure your order
Depending on the broker you use, you can configure many different kinds of orders.
A market order is the most straightforward, requiring virtually no setup. Once executed, you’ll get shares at the next market price for the share or fund unit.
If you have a specific strategy, then you’ll probably want more options in terms of configuration. Some brokers have highly customizable orders that can be triggered by events, meaning you can buy or sell when your chosen share or fund hits a price target.
Step 6: Place your order
When you’re happy with all of your decisions, submit your order to be executed.
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Pros and cons
- More investment opportunities. Invest in securities listed on one of the world’s most respected and versatile exchanges, in inspiring high-tech securities.
- Lots of choice. There are over 3,600 NASDAQ-listed securities, including both shares and ETFs.
- Risk spreading available. Diversify your portfolio by choosing an ETF or mutual index fund to reduce volatility.
- Growth-oriented companies. If you are looking for capital gains rather than dividend income, the NASDAQ is packed with growth-focused companies.
- NASDAQ trading hours. NASDAQ trading hours are 9:30 am to 4:00 pm US Eastern time, Monday to Friday.
- Foreign currency risk. Having a trading account in USD, and trading in shares priced in USD, exposes you to foreign currency risk and foreign exchange conversion fees.
- Foreign event volatility. US share prices are subject to volatility caused by events occurring in the US only, whose potential effects may not be immediately apparent to overseas investors.