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How to short the Nasdaq
Find out how to short the second biggest stock exchange in the world.
In turbulent times people want to short the Nasdaq, given that it’s the second largest stock exchange in the world. While it’s unlikely that you can get exposure to the entire stock exchange, you can invest in Nasdaq ETFs or in the Nasdaq Composite Index, and take short positions against them.
What does “shorting” the Nasdaq mean?
Short selling, or “shorting,” is a method of trading that allows you to take advantage of a decrease in an asset’s value. You short a stock by borrowing the asset from a broker to sell it, then purchase it back later at a (hopefully) lower price. It’s particularly popular to short a stock or market when there’s a stock market crash, such as during the coronavirus stock market crash.
You can read more about how to short sell stocks in our step by step guide.
How to short the Nasdaq: Step-by-step
- Choose a provider. Have a look at fees, features and trading options to make sure you choose a provider that supports margin accounts and/or inverse ETFs so that you can engage in short selling.
- Open an account. You’ll need to open an account with your chosen provider. You may need to provide your Social Insurance Number (SIN) and personal ID like a valid driver’s license or passport.
- Deposit funds into your account. If you’re investing in fund listed on a foreign exchange, you will likely need to pay a foreign exchange fee to convert your funds into Canadian dollars.
- Take a short position, or invest in a Nasdaq inverse ETF. Usually, you can start trading as soon as your account is set up and funds have been deposited.
How to short the Nasdaq
There are loads of different ways that you can short the Nasdaq. The most commonly used method for the average investor is to invest with inverse exchange-traded funds (ETFs). Another method is to take a short position on the Nasdaq with CFDs.
Invest in inverse ETFs
Inverse ETFs track an underlying index, such as the Nasdaq, but instead of following it closely, it moves in the opposite direction. So let’s say the NASDAQ was to rise in value by 2%, an inverse ETF that’s tracking it will decrease in value by 2%.
People generally invest in inverse ETFs to get profits in a very short period of time. It’s for this reason that they can be known as “ultra-short funds”.
You can get leveraged inverse ETFs, which can give you 2X or 3X times the exposure that you’d usually get. “Leverage” refers to borrowing effectively, so it’s possible to lose more than your initial investment with this method. Make sure you understand the risks.
How to short the Nasdaq with derivatives
Another way of shorting the Nasdaq is to take a short position using derivatives. This allows you to take a position on the stock without actually owning it. Some of the more commonly-used derivatives include options, futures, warrants and contract for differences (CFDs).
For example, you could take a short position on a selection of the stocks that are on the Nasdaq like Apple, Amazon, Netflix and Tesla. Alternatively, you can open a position on the Nasdaq 100 index, as long as the provider you choose allows you to.
What is the Nasdaq Composite Index?
The Nasdaq Composite Index—also known as the Nasdaq Composite—is made up of over 3,000 stocks and shares that are listed on the Nasdaq exchange.
How is the Nasdaq Composite Index performing?
The graph below tracks how the Nasdaq Composite Index has performed over the 3 months. Figures are stated in US dollars.
- You can short the Nasdaq using many different methods, but the two that will give you the most exposure to the Nasdaq are inverse ETFs and derivatives.
- In order to engage in short-selling the Nasdaq you need to use a broker who supports this.
- Taking a short position on any stock or ETF is a gamble, and the downside is often limitless.
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