Spread Betting On The NASDAQ Derivative

There are many ways in which investors can take advantage of favourable market movements. Of course, each of these is associated with its own levels of risk and the strategies often depend upon the preferences of the individual. One potentially lucrative approach is known as spread betting (sometimes referred to as point spread betting).

This strategy can be employed when dealing with various indices and for the sake of this article, we will be discussing spread betting in relation to the NASDAQ market. We will therefore begin by taking a closer look at the principles associated with spread betting. The article will then focus upon an examination of the NASDAQ index. Finally, readers can learn more about some of the most effective ways to leverage the benefits of spread betting.

Spread Betting at a Glance: The Fundamentals

It pays to discover what is a spread bet before moving on. In the simplest of terms, this type of investment strategy involves predicting whether the value of an underlying asset will rise or fall within a given period of time.

It is important to note that spread betting is known as derivative trading. In other words, the asset itself (such as a company listed on the NASDAQ exchange) is not physically owned by the investor. In the event that the value of an asset moves in the predicted direction, the individual will accrue a profit.

A Typical Spread Bet

Let us now imagine for a moment that an investor is interested in the value of a fictional NASDAQ listing known as "XYZ" for the sake of this article. First, he or she will analyze its fundamentals in order to determine whether its future value is expected to rise or fall. A broker will normally determine two prices:

• The bid (the price at which an asset can be purchased)

• The ask (the price that will trigger a sale)

The difference between these two values is known as the spread. Typically, an trader will become aligned with the bid price if the value of the asset or marketplace is expected to rise. On the contrary, bearish conditions normally cause traders to enter at the ask price.

What are Some of the Main Benefits of Spread Betting?

Leverage

It can be argued that one of the most profound advantages of spread betting involves the ability of a trader to perform margin trades. In other words, he or she will deposit a certain percentage of the entire value of an asset (known as the margin). In the event that the aggregate value of the asset rises, profits will significantly increase. It is nonetheless important to mention that substantial losses may likewise accrue.

Access to a Wide Range of Assets

Spread bets will provide traders with access to a massive array of assets. These include indices, blue-chip stocks, Forex pairs, and commodities. This is obviously beneficial for those who seek to develop and maintain a balanced portfolio.

The Ability to Offset Risk

Due to the diversity discussed in the previous section, spread betting is also a way to offset the risks associated with other portfolio holdings. This is known as "hedging". For instance, a trader may choose to spread bet an asset whose price is expected to move in the opposite direction of existing shares. The main takeaway point here is that losses associated with a single position can be offset by gains in another but situation where all positions bring losses also occur.

Low Commissions

Some will choose spread betting so they can trade on low commissions and fees. This arises from the fact that these charges are often calculated to be included within the spread between the bid and ask price. Therefore, it is much easier to formulate potential profit and loss margins. Such an approach could therefore be employed by beginners who seek to "learn the ropes" before moving on to more complicated trading strategies that can bring significant losses.

The NASDAQ Exchange: What do Traders Need to Know?

Now that we have examined the concept of point spread betting in detail, it is wise to move on and discuss how it can be used when trading on the NASDAQ stock exchange. Let us first begin with a brief overview of the NASDAQ and its primary characteristics. We can then list a handful of powerful spread betting tips to employ.

What Exactly is the NASDAQ?

The acronym NADAQ is an abbreviation for the National Association of Securities Dealers Automated Quotations. Tracing its roots back to 1971, it is also the oldest electronic trading system still in existence.

The NASDAQ extremely large, as it operates in no fewer than 29 different marketplaces in the United States as well as across Europe. The NASDAQ is the most popular platform for those who trade securities (instruments employed to raise capital within private and public markets).

There are currently more than 3,700 stocks associated with this market; examples include Microsoft, Apple, Amazon, and Tesla (1). Due to the sheer size of the NASDAQ, it is often used as a benchmark to gauge the current state of the economy. Thus, traders will analyze its performance before making important decisions.

The Subsets of the NASDAQ Marketplace

It should likewise be noted that there are several smaller markets found within the NASDAQ. One example is the NASDAQ 100. What is the difference between NASDAQ and NASDAQ 100 (See the NDAQ-100-Cash price)? The main takeaway point here is that the NASDAQ composite index is comprised of all the assets found within the NASDAQ stock market. The NASDAQ 100 is instead centered around the top 100 large-cap shares based on their market capitalization. Thus, the NASDAQ 100 is essentially a subset of the collection of 3,700 stocks mentioned earlier.

Now that we have a basic understanding of the NASDAQ exchange, let us take a look at a handful of powerful spread betting strategies to consider.

1. Reversal Spread Betting

This first approach involves placing a spread bet in anticipation that the current market conditions are set to reverse (from bullish to bearish or bearish to bullish). In other words, the bet will be opened in the opposite direction of the current climate. Technical indicators such as candlestick charts and moving averages are often employed when placing a reverse spread bet.

2. Breakout Trades

Breakout trades are instead associated with opening a betting position at an extremely early time in the hopes that the price of the associated asset will rise substantially. This theoretically provides traders with access to higher profit margins. There are also individuals who create price points. In the event that an asset reaches a specific value, the spread bet will be automatically executed.

3. Following Trends

This conservative approach is more centered around longitudinal NASDAQ trends. It tends to represent a medium-term strategy and investors will analyze moving averages in order to best determine when a trade should be placed. Note that following trends can be used whether going long or short.

4. Market Expectations and News

While this final technique may appear to be obvious, it still warrants mentioning. Many spread betting enthusiasts will keep up to date with the latest market news and analyses. These help to predict both short- and long-term movements. This is also a wise approach during times of high market volatility, as price points can change extremely fast. The ability to access late-breaking news enables investors to react before this information is reflected in the price of a listing; offering potentially higher returns.

Spread Betting and the NASDAQ Marketplace: A Powerful Strategy

It is now clear to see why a growing number of traders have gravitated towards spread betting within the NASDAQ markets. Of course, success will require patience and experience. It is also crucial to choose intuitive and reliable trading instruments. This helps to ensure that the correct decisions are made at the appropriate times. As the number of spread betting enthusiasts continues to increase, there is no doubt that these types of trades will become even more popular. It is therefore wise to perform a fair amount of research and perhaps most importantly, to understand that there is no way to completely eliminate risk. The main intention is instead to dampen its potential impact.

*Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when spread betting and/or trading CFDs. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

*Marketing for CFDs and spread betting is not intended for US citizens as prohibited under US regulation.