Interested in investing and heard of the Nasdaq? You’re in the right place. This article unpacks the Nasdaq: a key player in the stock market world. We’ll delve into how you can put your money to work in the Nasdaq, the types of companies listed on this exchange and even touch on the implications of currency risk for UK investors.
The Nasdaq is an American stock exchange based in New York City. It’s the second-largest stock exchange in the world after the one that shares its home city, the New York Stock Exchange. Nasdaq was initially an acronym for the National Association of Securities Dealers Automated Quotations. Catchy, we know. The Nasdaq is very technology-heavy, being the home to all of the FAANG stocks, which comprise the world’s best-known tech firms (Apple and Facebook, for example).
Yes, you can invest in Nasdaq from the UK in several ways. These days, many share-trading platforms and brokers offer access to US stock markets. You can buy individual stocks listed on Nasdaq or invest in index or tracker funds that mirror the performance of the Nasdaq stock market, for example.
According to the Nasdaq website, the exchange is “widely considered to be the exchange of choice for innovative companies in technology”, plus other sectors that play a big role in driving US economic growth.
So, if you want to invest in innovative firms with the potential for higher returns, the Nasdaq is worth a look. For UK investors, putting money into US companies as well as UK investments is also a way of diversifying your investment portfolio – an approach that can help manage risk by spreading assets across multiple markets.
There are 2 main ways to invest in the Nasdaq:
More than 3,500 stocks are available on the Nasdaq, including many of the largest companies in the world by market capitalisation.
Popular Nasdaq stocks include:
Some brokers or trading platforms will charge you a commission on every trade, while others may only charge you a foreign exchange fee when you initially deposit pounds and then charge no commission on trades.
It’s important that you understand the fee structure of each platform before using it to trade. Certain brokers or platforms will suit different types of investors but may be expensive if you only invest small amounts.
Below is a breakdown of the basic fees you’ll pay when making a single Nasdaq trade using each broker, as well as the foreign exchange fees involved.
| Platform | Fee for a US trade | Foreign exchange fee |
|---|---|---|
| eToro | £0 | 0.5% |
| Hargreaves Lansdown | £11.95 | 1% |
| Stake | £0 | 0.5% |
| Freetrade | £0 | 0.99% |
| Trading 212 | £0 | 0.15% |
| IG | £10 | 0.5% |
If you want to invest in Nasdaq but don’t want to buy Nasdaq stock directly, you have other options. For example, you can buy an ETF that tracks the performance of the entire Nasdaq index, as well as indices such as the S&P 500 or Dow Jones Industrial Average.
Dozens of ETFs and index tracker funds give you exposure to certain Nasdaq stocks. Many of these can be bought from the UK. Most popular UK trading platforms and brokers will offer at least one Nasdaq index tracker fund. Some of the most popular Nasdaq tracker funds include:
We chose Saxo as our top pick because:
Need to know: Opening a Saxo share-dealing account requires a high minimum investment (£500).
Read our review of Saxo.
As with any investment, the proof is in the proverbial pudding. Whether you deem investment in the Nasdaq to be successful depends on how your investments perform, and as with all investing, there is risk.
The Nasdaq (and US stock markets in general) has been the powerhouse of global growth for many years. The fact that it’s home to some of the most globally renowned companies has been reflected in its growth. So, there’s an argument that it’s worth considering for UK investors looking to expand their portfolios.
That said, it’s also the home of particularly innovative companies…and with high innovation can come high risk as well as high reward. Many of the stocks in the Nasdaq are dubbed “growth stocks” – companies anticipated to grow at a rate significantly above the average growth for the market. But they typically don’t pay dividends, as many FTSE 100 stocks do, and they can be expensive to buy. This means that if expectations of a company’s growth aren’t met, and you need to sell during a downturn, you could stand to make significant losses – as our table of 1-, 3- and 5-year Nasdaq returns (below) illustrates.
Such potential benefits – and potential risks – pose a strong argument for investing for the long term and in as many firms as possible to manage the risk of underperformance by individual companies or the market as a whole.
To give you an idea of potential returns of investing in the Nasdaq, below we’ve shown the 1-, 3- and 5-year price returns of the Nasdaq Composite index, starting from 2016. Price returns are directly linked to the index value.
Overall, bar a relatively small downturn in 2018, the Nasdaq has performed strongly. In 2022, the Nasdaq Composite was down from 14,512 to 10,466.48.
This shows the importance of investing for the long term and not panic-selling when the value of investments drops. While the Nasdaq may take a while to recover, history tells us that most stock markets bounce back from downturns eventually. After all, even after a substantial drop, the August 2023 value of the Nasdaq is still substantially higher than it was 5 years previously.
| Year | Index value* | 1-year return | 3-year return | 5-year return |
|---|---|---|---|---|
| 2021 | 15644.97 | 21.4% | 137.6% | 161.5% |
| 2020 | 12888.28 | 43.1% | 86.7% | 157.4% |
| 2019 | 9006.62 | 36.8% | 50.5% | 89.3% |
| 2018 | 6584.52 | -4.6% | 31.5% | 58.4% |
| 2017 | 6903.39 | 15.4% | 45.1% | 133.2% |
| 2016 | 5983.12 | 19.5% | 43.9% | 129.7% |
*At the end of the year
The Nasdaq Composite (COMP) is a stock market index that tracks the common stocks and securities on the Nasdaq. The Nasdaq-100 index tracks a subset of the top 100 non-financial stocks on the Nasdaq. You can invest in these indices by buying an ETF that specifically tracks the performance of the stocks in the index.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
The Nasdaq, home to some of the world’s largest tech stocks, is a compelling platform for investors. You can either pick individual stocks listed on this exchange or invest in ETFs or funds that mimic its overall performance. Before diving in, choose a broker that supports trading US stocks, and remember to account for any additional currency exchange fees.
There’s no denying that the Nasdaq has a heavy tech focus, with close to 60% of its holdings hailing from this sector. Conversely, the S&P 500 – an index tracking 500 large US companies – offers a broader sector mix, leading in technology (28%), healthcare (13%) and financials (12%). Consider your sector preference when choosing an index, and remember that diversification is the key to minimising risk.
For UK-based investors, investing in the US-based Nasdaq means dealing with currency risk. Essentially, currency fluctuations could impact your investment’s value in pounds. ‘Hedged’ funds can help mitigate this risk, acting like a financial cushion to absorb the shock of currency movements.
And yes, the Nasdaq does pay dividends, with an average yield of 1.74%. So, if you want to feel like a Silicon Valley big shot and collect some (fairly modest) passive income along the way, investing in the Nasdaq could be for you!
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